Blockchain 101

Blockchain is a new buzzword in technology. It’s the basis of all the excitement about Bitcoin, cryptocurrencies, and Fintech. If you’re unfamiliar with blockchain technology, think of it is as a trustless decentralized general ledger. What that means is – everything written to this ledger is considered the “truth” only after consensus is supplied by a significant majority of participants hosting the blockchain. This makes the blockchain “trustless” because no party can manipulate the results without conspiring with that large majority. Imagine a card game where everybody had to show their hands. There would be no bluffing (though it wouldn’t be a very interesting card game).

Participants of the blockchain are often “anonymous” so understanding who you would potentially conspire with is also challenging and quite impractical. (On tuka the parties to an exchange would not be anonymous, so you would know exactly who you were dealing with.) Furthermore, the blockchain leaves an audit trail of all previous transactions for transparent traceability and the continual lengthening of the block structure makes it difficulty to create a forgery. On tuka this means a user can trace his or her own peer network that can yield significant value.

The blockchain is physically decentralized like a large distributed peer-to-peer database. The single source of truth information it holds is virtually centralized and all data is publicly accessible. Information written to that blockchain can be verified without understanding what the contents are because of how blockchain works in trustless mode.

In plain English, blockchain technology eliminates the need for a 3rd party middleman to insure trust in the system. This applies to banks and insurance companies as financial intermediaries, lawyers and politicians as legal intermediaries, and, in the creative industries, online middlemen like centralized retailers and distributors (Apple, Amazon, Google). This has broad and deep implications for the business models of these industries. Such 3rd parties are quite costly to transactions and in the case of digital content, often take the lion’s share of the value.

We’re learning here as we go, but this should provide some food for thought…(to be continued)

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What is the Blockchain?

 

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