It’s helpful to understand what is innovative about the blockchain to understand the value of Ethereum. Let’s start with what the blockchain is and how it works.
TL;DR Blocks in the context of the blockchain are a bucket that contains transactions. The blockchain is simply a chain of blocks, or a sequence of transactions. It’s cool because it uses math to verify transactions are valid and the storage is done by users of the blockchain instead of relying on central authorities for those features. This cuts out the middle man and enables unique business models and solutions to problems.
What is the blockchain
Imagine you and a friend share things often and instead of giving each other cash back and forth all the time, you keep a running tab on a spreadsheet. So, your friend buys you a beer and you record that your friend spent $5 or whatever the cost of the beer. This simple example is enough to explain blockchain at it’s core, which is a just a sequence of transactions stored one after another.
Now, say this system goes well and some of your friends want to join in, and you get tired of editing the spreadsheet yourself and verifying transactions, so you make the spreadsheet available on Google Sheets and allow anyone to view and edit it. You may trust your friends, but now they invite some of their friends to join, and you don’t know your friend’s friends. How do you prevent people from lying and making false transactions in the spreadsheet, or going back in time and editing old transactions?
This is the problem that the blockchain solves. The blockchain is just a special ledger that records transactions and also solves this problem of verifying untrusted transactions. It relies on math to verify that transactions are legitimate and that the past transactions have not been re-written so that “bad” transactions are rejected and not added to the chain.
Another key feature about the blockchain is that it is not hosted in any central location using any central service provider, as I led you to imagine with my example using Google Sheets hosted on Google’s servers. Hosting a spreadsheet on Google Sheets forces us to trust Google to provide the service, to not tamper with the data, and to remain available to us, among other things. Instead, users of the blockchain network themselves provide storage of the transactions and also provide the services of maintaining data integrity, and keeping the blockchain network available, and they do so simply by participating in the network.
Why should I care?
The blockchain is the ultimate “cut out the middle man” platform. It will allow for new business models and new cost cutting solutions for existing business models. Especially with our phones and computers getting faster and more powerful, it allows for unique solutions that have advantages over centralized platforms. It provides the possibilities of providing services instantly all over the world, including in poorer countries who lack expensive infrastructure. There are nearly unlimited possibilities that we will take a dive deeper in to with later posts.
Now that you have a handle on the blockchain, I encourage you to read up on why the Ethereum blockchain solution is particularly cool.