There are several moments in history when a sudden leap in technology leads to a dramatic expansion of our capabilities as a species. One such moment was the invention of the steam engine, another, the invention of alternating current.

From the 19th century to the present day these moments have have been happening more frequently and most of them happened in the last 60 years.

The latest, most important and probably the most misunderstood of these leaps probably is the advent of blockchain technology. It was born out of a mysterious hacker’s intentions to build an electronic cash system running over the internet.

Bitcoin, a Peer-to-Peer Electronic Cash System

In 2008, an anonymous hacker, only known by the pseudonym Satoshi Nakamoto, published an academic paper online, along with the source code of a fully functional cash system prototype that runs over the internet.

We know it today by the name of Bitcoin and it is probably what we think about when we say “digital cash”. Its greatness comes from the fact that it is fully operational without any managing entity, meaning that it is naturally decentralized. It is ridiculously hard to achieve this feat and research on this subject started decades ago.

If the invention of the engine allowed us to build cars, in the same way, the invention of blockchain allowed us to build Bitcoin.

Understanding Blockchain

Blockchain is actually an umbrella term for any software that has the following characteristics:

It runs on a network of peers (inter-connected computers).

All peers store locally an identical list of transactions.

All peers achieve consensus among themselves on what the next entries in the list are.

Peers can add new transactions to the list if they match a cryptographic condition i.e. they have the key required to spend some coins.

There is no single peer or group of peers that dictates what the consensus is.

And that’s it. Any software that satisfies these criteria is considered to be blockchain software. Without these characteristics, you don’t have anything more than a database.

Performing a transaction

To send money to someone through a blockchain, you need something called a public key and a corresponding private key.

A public key is the equivalent of a bank account’s IBAN number. It is a sequence of “random” characters that represent a balance. Each public key has a corresponding private key which is, well, private and it is used to authorize the spending of funds from an account. Think of it like a PIN number.

In order for Tim to send Alex 100 coins through a blockchain, Tim must sign a transaction destined to Alex’s public key with his own private key, thus proving that he owns the funds.

The blockchain will accept or reject the transaction based on the validity of the signer’s private key.

An Analogy For Blockchain

To put it in an analogy, let’s imagine the computers that are in the network as different people, that each has a magic piece of paper which they cannot write to or erase from unless a special condition is met.

This piece of paper tells how much money each of the person has and the condition is that they actually own the money (by signing using their private key). When the condition is met, each participant will be able to write to his corresponding piece of paper the new, updated balance of everyone.

The reason why everyone has an identical piece of paper is simple: let’s imagine someone wants to edit his balance and say that he has more money than he actually has. He would have to edit all of the pieces of paper that everyone has, at the same time. This is the fundamental property of blockchain technology.

Fake Blockchains

Because of the cryptocurrency bubble, more and more projects are popping up claiming that they are “blockchain technology”. It is however, very hard or next to impossible for a non-technical person to differentiate between a fake blockchain and a real blockchain.

I believe this creates much of the confusion of today in this space. To protect against being scammed, one must thoroughly analyse a project and determine if the aforementioned criteria fits.

If you actually take the time and do the research, you will learn that there are actually just a couple dozen projects who fit the required criteria. This means that most of the projects are just scams.

Problems in Current Blockchain Implementations

Today, the biggest problem of blockchain implementations is that they do not scale. There is no blockchain network that can sustain the use of billions of users (this is what the Purple Protocol attempts to solve).

Besides this, most of the problems lie in lack of documentation and poor usability.

Blockchain Technology Won’t Save The World

I believe that there is no silver bullet to our problems as a species. Any new system or technology that we introduce into our daily lives has both benefits and consequences, and blockchain technology is no different.

It is not the technology that we use that is the problem but the way we use it.

The problem that blockchain solves is that there is no competent way to transfer assets through the internet. A blockchain protocol allows this to happen without any middlemen involved.

We still have a long way to go before we transition to a blockchain backed economy.

What Blockchain Actually Does For Us

Outlined, the most important benefits that blockchain technology brings to the table are the following:

A fast and low-cost way to transfer assets through the internet.

A way to bypass censorship.

A way for governments to balance the books between them.

A method of performing automated payments under different use-cases e.g. automatic insurance payment.

A decentralized way of tracking copyrights and patents and other public records.

A way to track the manufacturing and distribution of goods.

These are all different things that a competent blockchain implementation allows us to do. All that is left is for us to do them.

And of course, this takes time…