Many definitions move around the Blockchain: Internet 4.0, Internet of transactions, decentralized registry, and so on. But the real question everyone asks is “What is really the Blockchain?”
The role of a central institution
We can say that Blockchain is a Database. A great database where information and transactions are saved. So what? All the hype of the moment is for a simple Database? Of course not.
Let’s take a step back and analyze the case of borrowed books in the library.
Source: image modified from Google Images copyright free
When we borrow a book, the library records the transaction in a database. “Alice takes the book X at 12:00 and she has to return it back the day Y”. If Alice does not return the book on the day set, she will have to pay a penalty equal to the value of the book.
In this case, the library is a third party that certifies the loan transaction of a book. The same role is played by many institutes in everyday life. Among them, the best known are banking institutions or credit card companies.
These central authorities, acknowledged by the Government, guarantee citizens the security of their money and the validity of each transaction.
Even in the case of the library, Alice is sure that nobody will come back to ask her the book before the agreed date. Let’s imagine now that Alice wants to borrow the same book to Bob. She should go to the library, hand over the book, and Bob should open a new transaction with the library. Also, in this case, is always required the intervention of a third party. It is because, at the base of all, there is a mutual lack of trust in a single person and we want the value we provide to another person to be publicly recognized.
And when the certification body is no longer reliable?
This is the key question that is the spark of everything. What happens when the bank or the government are entities that you can not trust anymore?
As you well know, the Real Estate 2007 crisis has shaken the foundations of a world financial system that has obvious problems. Millions of people saw their money disappear from day to day. A similar situation happens during the Greek crisis, which led the nation to freeze the savings of its citizens by avoiding withdrawals over $70 a day.
Such events undermined citizens’ confidence in the big institutions, addressing the desire of many to have a different control system.
A decentralized system
The natural alternative to a centralized system is the birth of a decentralized system. We can then refine the definition of Blockchain more and more.
The Blockchain is the technology behind a decentralized system that allows a huge distributed database to work.
It is no longer a bank or a library that will certify our transactions, but it will be all the nodes that are part of this huge system.
However, if there were 100 or more people who certify that Alice lent a book to Bob, we would be more confident that the transaction is honest.
Our confidence would no longer be in a single entity, which could also be corrupted, but in a wider system, whose chances of being malevolent are much lower.
We will analyze the details and all the questions that revolve around the Blockchain in the next chapters.
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Some of the content of this post has been taken from the book Blockchain by Mark Gates