Introduction to Blockchain for Beginners (Non Technical)
- April 10, 2018
Before dive in to deep we should know why we need Blockchain?
To explain this easier I’ll take couple of sample use cases. One is Money transfer and another one from property transfer.
Money transfer:- Just imagine Alice from USA want to transfer $100 to bob who is in Japan. The most common way is he will go to one of the banks in USA and transfer the money to bob’s account. Or else even more advanced he will make an online transfer that also will go through a bank or a money exchange system.
What are the problems in this scenario is if Alice want to transfer $100 then he needs to pay some amount while doing the transaction. Other side whoever want to withdraw need to pay a fee for his action. Ideally bob will end up getting $95.
What if there is a process that we can use to transfer money without any third party involvement and also spend less fee for transaction that too in real time. WOW! 🙂
Property transfer:- Again imagine now Alice and bob are living in same country and Alice want to sell his land to bob. For that he need to transfer his ownership to bob. Usual way was Alice and bob will go to a legal adviser and make a legal agreement or contract to transfer the ownership.
The issues in this scenario is again they need a third-party to make an agreement and also they need to pay some fee for his service as well.
What if there is a legal process where Alice and bob will write a digital contract or agreement to agree on some terms and sign on it and transfer the ownership without the involvement of middle man.
So now you can think about various day today life scenarios where we depend on middle man and speeding fee for their services.
Why i am talking about the middle man and the transaction fee here is, if we used blockchain technology we don’t need to depend on a trusted third party and no need to spend too much fee for transaction and other services.
What is Blockchain?
Blockchain is a technology that will enable a person to transfer valuable assets to another one securely without the involvement of a middle man.
Blockchain is a decentralized system where each of the users are connected to each other like a peer to peer connection. And there is no central point to control. Validity of the transactions will be controlled by the other nodes who are connected to system (Miner).
Once a person makes a transaction and it got validated, then the transaction details will be go in to some hashing process and it will be stored as a new block. And the new block will have the reference of the previous block. So ideally it will make a chain by reference the previous blocks.
Once the block was added to one chain then all the nodes in the chain will get that block and add with their chain in order to maintain the same version of the chain. To make the chain secure the hash of the block will be created by the combination of the transaction data, timestamp, previous hash and many other details. So once someone try to add or remove a block will not be possible because each block has unique hash that created by the combination of previous hash. Even if they try to add and break their chain will not affect the other nodes because each have their own chain and it’s not practically possible to update all the nodes chain data.
There are more advanced and technical things consist while validating the transaction, creating a hash and storing the transaction data. Next story will explain those things in detail.
Let’s come to our uses cases
If Alice transfer the money through blockchain then he don’t need a third party involvement as well as the transaction will happen in real-time with less transaction fee not even a $1. And the transaction will create a block and broadcast to every node. (Its like becoming your own bank)
Same as mentioned above if Alice digitize his land deed or records and stored in blockchain then when he want to transfer that to bob they can write a smart contract that will indicate the agreements. And once both digitally sign the contract a new block will be created and that will store the land owner as bob. Alice already own the land and that recorded in the blokchcain and now once he transferred his ownership it will be published to all the nodes saying that the new owner of the land is bob.
Already there are many banks and companies using blockchain technology to transfer money, assets, data and many more things. In early stages it used to transfer only money and after the inclusion of smart contracts the growth of blockchain is unstoppable. Blockchain technology already disrupt finance, healthcare, supply chain, insurance and logistics industries. And every company will use blockchain by 2027.
Note:- As mentioned earlier this post is to provide a brief overview about blockchain and not discussed any advanced and technical concepts behind the blockchain. This is more like a tip of the iceberg and the next story will explain behind the scenes of blockchain.