A blockchain is just a ledger or database. People use it to keep track of all transactions that occur on the network. This is a big deal because typically you need to trust a central authority, such as a bank, to track your financial transactions or a hospital to track your medical records. Now you don't have to worry about hacks like the Target hack in 2013 where 40 million credit cards were compromised. All your data will be secured and validated in the blockchain. PWC has a great infographic to explain this:
When you send 100 bucks via paypal/Venmo to your friend in ohio, paypal isn’t literally putting a $100 bill on a plane. When you “received the money” it doesn’t mean there’s cash that got out of the plane and was just deposited into a metal box with your name on it.
When somebody “trades stocks” the stock exchange isn’t moving paper stock certificates and your bank isn’t physically moving paper bills – all they really are, are giant digital LEDGERS – moving digital numbers around from one account to the other.
So your money, stocks, even identity are just information on ledgers. Data. Does it really matter if a stock certificate is blue or green or 1 inch larger? The physical container of the data (colored pieces of paper, certificates, stone tablets, papyrus rolls, seashells….) doesn’t matter. It’s what’s being contained that matters (value, ownership, identity) and those are things that exist in the mind. And those things are recorded in our record books.
Traditionally, you had to have a central authority preside over a record book. How else would you do it? An accountant cannot give free access to his books. If everyone had full access to it, I’d just add a a billion to my balance and retire (although someone else could then take it away from me…).
So we have institutions by necessity. The paypal ledger lives in a paypal computer. The bank ledger lives in a bank computer. That ledger is updated, secured and managed centrally. We trust these institutions to keep the integrity of the ledger.
Now what happens when you have a magic ledger where there’s no central authority, but by some magic (== blockchain) we still know that the transactions have 100% integrity? Nobody can cheat the system.
Some things to think about in terms of potential. This is all for better or worse.:
A Visual Demo of How a Blockchain Works
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