Blockchain this. Blockchain that.

In the previous lesson, I gave a high-level technical overview of what a blockchain is that hopefully wasn’t too boring.

Now that you know what it is…

What’s so special about blockchain technology?

Asking what’s so special about blockchain is like asking what’s so special about the internet. Or electricity. Or the light bulb.

Blockchain important as a light bulb

Or getting crispy McDonald’s french fries fresh from the fryer.

Yep, it’s that special.

Here’s why…

Before blockchain, if you had to store data on a computer that was super important, you needed someone or some entity to OWN and CONTROL the data. Which meant a central authority was needed.

For example, your bank account balance. The bank owns this data and controls how the data is updated.

Your bank ensures that every transaction is valid and authorized by the customer whose funds it moves. Your bank will never let you modify their database directly, even if you ask nicely.

The bank has to hire IT security folks to protect its data from hackers and other unauthorized people.

Bank needs IT security to protect data

Even before computers, this was a problem.

To maintain an account or any sort of record of transactions, you always needed to designate a person or entity as the “central authority”.

This central authority would be the one who maintained the LEDGER, or record of transactions.

Paper record of transactions

Back in the day, a ledger was basically a piece of paper or an artisan-made leather-bound notebook, updated by hand and kept in a safe place like…in one’s desk drawer.

Book as a ledger

But once computers were available, the ledger was transferred into a database stored on a hard drive of a centrally located computer that was (hopefully) well guarded.


Later, IT folks realized it probably wasn’t a good idea to just have the database stored on just one computer, because if the hard drive crashed or the computer overheated and burst into flames, the data would be gone forever. 

So the database was REPLICATED across multiple computers to keep the data safe.

But even with the database having multiple copies, these copies still relied on the primary or “official” database. Which was still owned and controlled by a central authority.

This also meant that if you could somehow hack into the primary or “official” database, you could tamper with the ledger and do bad things like uh….add extra zeros to your bank account balance.

This single point of control is a big weakness of having to rely on a central authority.

What if there was a better way?

What if there was a way to maintain a ledger without needing a bank or other central authority to own and control the ledger?

Enter blockchain technology.

Before Satoshi Nakamoto came up with the concept of a blockchain, nobody had figured out a solution on how to maintain a decentralized ledger.

But the Bitcoin God figured it out!

Instead of needing an “owner” for the database, his approach was to store the database across a computer network.

Blockchain network

A computer network is just a bunch of computers that are physically located in different parts of the world and communicate with each other using the internet.

Each computer on the network stores its OWN “official” copy of the database.

That means that there is no “main” copy though. Every copy of the database IS the main copy!

This is where “distributed ledger” comes from.

Computers are physically located in different places across the world. And each computer keeps a copy of the “ledger” (the database).

Computers across a global network

The computers check and verify transactions to make sure they are all legit before making changes to the database.

Whenever updates are made, the database is shared across the entire network to make sure every computer is keeping the same copy.

The “distributed” part comes from the fact that the computers are geographically distributed in different locations and communicate with each other on a network to make sure every computer is using the same “ledger” (database).

This database is also made PUBLIC for everyone to view in real-time, including any changes.

The blockchain killed the need for CENTRALIZED ownership and control of digital data.

Instead of having to rely on a “central authority” to decide on when to update the ledger, the blockchain relies on “consensus” among all the computers on the network.

How the computers come to a consensus is based on a programmed set of rules and instructions called a protocol.

This protocol runs on a software application that’s installed on all the computers on the network

Software protocol

Think of when you have to make a decision as a group.

  1. One way to decide is by the “authority” rule where one person makes the decision for the entire group.
  2. Another way is by “consensus” where each person in the group agrees to support the decision.

The former is how digital ledgers or records of transactions (“databases”) were maintained and kept accurate PRIOR to the blockchain.

The latter is the breakthrough that blockchain achieved.

Imagine thousands of random people (or computers):

  • who don’t know each other and who don’t trust each other…..
  • all agreeing that a file containing a history of all transactions is accurate….
  • without the need of some kind of third-party middleman to “verify” its accuracy.

The genius of blockchain technology is that it cuts away the middleman yet maintains an infrastructure that allows strangers to deal with each other.

Computers across a global network

It does this by taking away the role of “I will maintain the ledger.” from central authorities like banks and handing it to a network of autonomous computers where “We will all have a copy of the ledger and maintain it together.”

This transfer of control and decision-making from a centralized entity (individual, organization, or group) to a distributed network creates a DECENTRALIZED system of trust that operates outside the control of any institution.

That’s a crazy accomplishment!

The blockchain now makes it possible to share and maintain a set of data (like a record of transactions) with many computers that don’t trust each other. But the data itself could be trusted to be accurate.

This had never been done before!

Blockchain technology is such a life-changing technology that it is now classified as a general-purpose technology, like the steam engine, electricity, computers, the internet, and the selfie.

Blockchain Technology

Even though blockchain technology’s most famous example is Bitcoin, it is now used outside of Bitcoin by other cryptocurrencies.