Blockchain Explained Simply

You can think of blockchain as a kind of digital notebook. Every new transaction is recorded in it. It's public, and anyone can view the recorded transactions. The notebook is constantly copied and sent to participating computers. This prevents any single party from changing the notebook. Changes cannot be implemented directly but can only be proposed. They are only applied if the majority of participating computers agree.

The history of all changes is also visible to everyone in the notebook. Since the participating computers verify the blockchain, there is no need for a central authority to oversee it. Because there are many individual computers and no central authority, the blockchain is decentralized.

By the way, the new entries in the notebook—or in the blockchain—are grouped into blocks. These are then added to the existing transactions in the notebook. Instead of imagining the existing transactions as a notebook, you can now picture them as blocks lined up in a sequence, forming a chain of blocks. That's where the name "blockchain" comes from.

This is Why Blockchain is Revolutionary

Blockchain solves a fundamental issue: the "trust" problem in a digital world. With blockchain, information can be stored and transferred securely, transparently, and quickly without the need for a central intermediary. This saves time and money—and reduces fraud and abuse.

Let's illustrate this with an example of a money transfer. Imagine you buy a chair on eBay classifieds. Since the seller doesn't live nearby, you transfer the money as an electronic payment.

For this transaction, you need an intermediary, a third party that both of you trust. In this case, it's a bank. The bank documents and monitors your transfer and ensures that the payment reaches the seller and is correctly debited from your account. The bank charges fees for this service. It operates centrally and could, in the worst-case scenario, even go bankrupt. Additionally, centralized systems are generally easier to manipulate.

Alternatively, you could pay for the chair with a cryptocurrency like Bitcoin (assuming, of course, the seller accepts it and has a wallet to receive the Bitcoin payment). In this case, you eliminate the need for a bank as a central intermediary. The role of the intermediary is taken over by the many participating computers in the network. This makes the same transaction more direct, faster, safer, and cheaper.

It's worth noting that cryptocurrencies—except for —still experience significant fluctuations in value, making them only partially suitable as a payment method. Additionally, the use of cryptocurrencies is still limited in many countries. Furthermore, maintaining the blockchain, depending on the technology, can consume a lot of energy. However, these issues are expected to decrease as cryptocurrencies become more widespread and technology advances.

Cryptocurrencies like Bitcoin are the most well-known examples that rely on blockchain technology, but they are just one of many possible applications. Blockchain can be used in a variety of ways and has the potential to significantly change our lives. Some examples include:

Elections: Blockchain can provide a secure and transparent system for online voting, where votes are securely recorded and cannot be tampered with.

Supply Chain Management: Blockchain already allows for tracking the origin of products from the source to the end consumer. This improves transparency and helps prevent fraud, such as the sale of counterfeit goods.

Land Registry: Property ownership can be recorded in a blockchain-based land registry, making land expropriation impossible. While this may not be a concern in Germany, there are countries where trust in the state is not as strong.

The revolutionary aspect of blockchain is that it could make intermediaries as we know them today unnecessary. From platforms like Airbnb to ride-hailing services like Uber, notaries, and even banks.

It is expected that blockchain will gain importance beyond the financial world. How the technology will develop and spread is uncertain. However, one thing is clear: with its ability to store data immutably and conduct transactions without intermediaries, it has the potential to revolutionize many industries and processes. We are witnessing the beginning of a development whose potential is far from being fully realized. Will it lead humanity to a better future?