Unless you’re hiding under the rock, I am sure you’d have heard of Bitcoins and Blockchain. After all, they are the trending and media’s favorite topics these days — the buzzwords of the year. Even the people who’ve never mined a cryptocurrency or understand how it works, are talking about it. I have more non-technical friends than technical ones. They have been bugging me for weeks to explain this new buzzword to them. I guess there are thousands out there who feel the same. And when that happens, there comes a time to write something to which everyone can point the other lost souls to — that’s the purpose of this post — written in plain english that any regular internet user understands.

By the way, I am curator of a weekly newsletter, Unmade, which delivers one idea from the future to your inboxes.

Blockchain: why do we even need something this complex?

“For every complex problem there is an answer that is clear, simple, and wrong.” — H. L. Mencken

Unlike every other post on the internet, instead of first defining the Blockchain, we’ll understand the problem it solves.

Imagine, Joe is your best friend. He is traveling overseas, and on the fifth day of his vacation, he calls you and says, “Dude, I need some money. I have run out of it.”

You reply, “Sending some right away,” and hung up.

You then call your account manager at your bank and tell him, “Please transfer $1000 from my account to Joe’s account.”

Your account manager replies, “Yes, sir.”

He opens up the register, checks your account balance to see if you have enough balance to transfer $1000 to Joe. Because you’re a rich man, you have plenty; thus, he makes an entry in the register like the following:

The Transaction Register

Note: We’re not talking about computers only to keep things simple.

You call Joe and tell him, “I’ve transferred the money. Next time, you’d go to your bank, you can withdraw the $1000 that I have just transferred.”

What just happened? You and Joe both trusted the bank to manage your money. There was no real movement of physical bills to transfer the money. All that was needed was an entry in the register. Or more precisely, an entry in the register that neither you nor Joe controls or owns.

And that is the problem of the current systems.

To establish trust between ourselves, we depend on individual third-parties.

For years, we’ve depended on these middlemen to trust each other. You might ask, “what is the problem depending on them?”

The problem is that they are singular in number. If a chaos has to be injected in the society, all it requires is one person/organization to go corrupt, intentionally or unintentionally.

What if that register in which the transaction was logged gets burnt in a fire?

What if, by mistake, your account manager had written $1500 instead of $1000?

What if he did that on purpose?

For years, we have been putting all our eggs in one basket and that too in someone else’s.

Could there be a system where we can still transfer money without needing the bank?

To answer this question, we’ll need to drill down further and ask ourselves a better question (after all, only better questions lead to better answers).

Think about it for a second, what does transferring money means? Just an entry in the register. The better question would then be —

Is there a way to maintain the register among ourselves instead of someone else doing it for us?

Now, that is a question worth exploring. And the answer is what you might have already guessed. The blockchain is the answer to the profound question.

It is a method to maintain that register among ourselves instead of depending on someone else to do it for us.

Are you still with me? Good. Because now, when several questions have started popping in your mind, we will learn how this distributed register works.

Yes, but tell me, how does it work?

The requirement of this method is that there must be enough people who would like not to depend on a third-party. Only then this group can maintain the register on their own.

“It might make sense just to get some Bitcoin in case it catches on. If enough people think the same way, that becomes a self-fulfilling prophecy.” — Satoshi Nakamoto in 2009

How many are enough? At least three. For our example, we will assume ten individuals want to give up on banks or any third-party. Upon mutual agreement, they have details of each other’s accounts all the time — without knowing the other’s identity.

1. An Empty Folder

Everyone contains an empty folder with themselves to start with. As we’ll progress, all these ten individuals will keep adding pages to their currently empty folders. And this collection of pages will form the register that tracks the transactions.

2. When A Transaction Happens

Next, everyone in the network sits with a blank page and a pen in their hands. Everyone is ready to write any transaction that occurs within the system.

Now, if #2 wants to send $10 to #9.

To make the transaction, #2 shouts and tells everyone, “I want to transfer $10 to #9. So, everyone, please make a note of it on your pages.”

Everyone checks whether #2 has enough balance to transfer $10 to #9. If she has enough balance, everyone then makes a note of the transaction on their blank pages.

First transaction on the page

The transaction is then considered to be complete.

3. Transactions Continue Happening

As the time passes, more people in the network feel the need to transfer money to others. Whenever they want to make a transaction, they announce it to everyone else. As soon as a person listens to the announcement, (s)he writes it on his/her page.

This exercise continues until everyone runs out of space on the current page. Assuming a page has space to record ten transactions, as soon as the tenth transaction is made, everybody runs out of the space.

When page gets filled

It’s time to put the page away in the folder and bring out a new page and repeat the process from the step 2 above.

4. Putting Away The Page

Before we put away the page in our folders, we need to seal it with a unique key that everyone in the network agrees upon. By sealing it, we will make sure that no one can make any changes to it once its copies have been put away in everyone’s folder — not today, not tomorrow and not even after a year. Once in the folder, it will always stay in the folder — sealed. Moreover, if everyone trusts the seal, everyone trusts the contents of the page. And this sealing of the page is the crux of this method.