In November 2008 an anonymous identity that went by the pseudonym Satoshi Nakamoto released a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” , and thus the idea of the blockchain was born. Two months after the paper was released the bitcoin protocol was launched. Ever since then there has been 2000 blockchains created for various reasons. In this blog post we are going to explore what a blockchain is, some of the tradeoffs and when the trade offs are worth it.
So what exactly is a blockchain?
A blockchain is a ledger that is publicly distributed over a peer-to-peer network that allows anyone in the peer-to-peer network to access its records and even add new records. In the case of bitcoin new records are added to the ledger every 10 minutes in what are referred to as “blocks”. Blocks are a collection of records added to the ledger since the last block was added plus meta information about the last block. A collection of blocks create a blockchain. The act of solving a block refers to the mathematical puzzle one must solve that helps prevent tampering with transactions retroactively.
So why would you need one a blockchain?
I’m going to be upfront and honest. Most of times you don’t. Blockchains are slow, inefficient, complicated databases that don’t scale very well. The reason for that is, they are distributed, contain every record since their creation, and are expensive to secure. But, that is intentional. The reason they are distributed, contain every record, and are expensive to secure is, the data stored in them is meant to be immortal, fault tolerant and immutable.
These traits are absolutely vital to virtual cash transactions. There is a computer science problem known as double spending. If I send you a gif of a cute cat being adorable I retain a copy of the gif, and you get a copy. So what’s to stop me from sending the same gif to multiple people? Nothing. Now imagine there was a ledger that recorded “chris sent tommy 1 adorable cat gif, chris cat = 0, tommy cat = 1”. You get the idea.
With a way to transact epic cat gifs, they become like digital cash. Now in order to continue transacting that cat gif, we need to retain the entire cat gif transaction history in a way that is impossible to fudge. Or at the very least make fudging incredibly cost prohibitive so that the person spending resources to fudge cat gif transactions is punished or better yet, reward the person more for being honest.
So again, when would you actually need a blockchain? If and only if your need for decentralized, fault tolerant immutability exceeds the need for speed and scalability. In a future blog i’ll reveal some of the best uses cases I’ve discovered for blockchain technology.