What Is Blockchain? A Simple Explainer for Businesses
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In 2010, Laszlo Hanyecz paid another user of a bitcoin forum 10,000 BTC for two Papa John’s pizzas.
Those BTC today? They’re worth $110 million dollars* (*$110,111,638 as of January 24, 2018). Yeah, I hope he got extra garlic sauce with that.
This was the first time bitcoin was used in a transaction, and it has been memorialized as Bitcoin Pizza Day. Every year in May, the crypto community celebrates Laszlo’s late night craving for a slice.
Now people are talking about a bitcoin bubble and raising capital via initial coin offerings.
Even iced tea companies are jumping on the crypto craze to jump their stock price.
And remember tamagotchis? Thanks to bitcoin, they’re making quite the comeback — except now they’re digital kittens — some worth $110,000.
If you’re like most, all the headlines and hype about bitcoin and digital mining is just confusing.
But the biggest opportunity for businesses of any kind are actually related to the technology that underlies bitcoin — known as blockchain.
It’s changing the way we think systems should work.
Now, transparency actually equals more security and complex value networks … they can be simplified through technology.
If we’re talking in terms of the scale of disruption, blockchain is less Airbnb upends the hotel industry and more like how the internet … well, it changed everything.
But we’re getting ahead of ourselves. Let’s start with the basics:
Blockchain is a incorruptible digital ledger that can record anything of value.
With blockchain, transparency is the rule, not the exception.
Say you’re working on a document with your team.
If someone makes a change in a Word document, you have to wait for the new version to be sent to you before you can view the adjustment or continue making changes. And then you send it back. And then you wait for a new version. And this goes on and on and becomes even more complicated as more people get involved and make revisions.
However, with a Google Doc, there’s one record that everyone has access to at all times.
Because communication and collaboration occurs directly between users, there’s little need for intermediaries and gatekeepers.
But, what’s so bad about a middle man? They tend to make things more complicated and definitely more expensive.
When you buy a house, you pay for a lot of other small costs like title registration, mortgage lenders, inspections, and legal fees. There are all these other people involved to provide access, regulate, and administer a sale from one person to another.
But a lot of this complexity disappears with blockchain. You can record property data and even build in digital rules — called smart contracts — that, once fulfilled, allow the system to automatically transfer a property title or money for purchase.
And with blockchain, the information stored is permanent.
It’s almost impossible to manipulate because each block, which is basically a file of data, contains a unique hash. Blocks are also marked with the hash of the previous block, which links to and creates the blockchain. If a previous block’s information is changed, a new hash is created, and all the following blocks become void since they no longer reference the correct hash of the previous block.
And when someone wants to add a new block to the ledger, a person in the network known as a validator has to verify the data and solve a mathematical problem before it can be added. This is where the term “mining” comes into play.
Once it’s added to the chain, everyone in the system gets an updated copy.
This distributed information network means that multiple people have a single source of truth, and no one person can simply rewrite history or delete a central record.
While the buzz around bitcoin is turning investors’ heads, the real change — how we communicate, make purchases, and even gain access to information — will be driven by blockchain.
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