Trust but Verify: Blockchain Does Both
The core challenge of digital currency has been the problem of double dipping. If a user has a digital currency unit and is clever, it is possible to send the digital currency unit to more than one recipient, both of whom would believe it to be legitimate – unlimited at-will digital counterfeiting. That’s no good. The obvious answer is to have a trusted third party who moderates the system to keep everyone in check. This is a perfectly good answer as long as the moderator is more clever than the all nefarious participants now and in the future. Not likely. Sooner or later, somebody will get past the poor moderator.
The core of the bitcoin system is to take the role of moderator and break it into many pieces and scatter it across the internet – sort of like Voldemort’s Horcrux strategy, minus the evil. The system that allows this diffuse and distributed moderation is the blockchain.
The blockchain is normally called a digital ledger. But what is it really? It really is a digital ledger. It contains a record of every transaction in the system since the start of the system. Multiple copies of it exist across the system, held by participants. When a transaction is made, these copies must sync in order for the transaction to be valid. If a crook attempted to just create more digital units, he does not have to beat one moderators but a large number of moderators. Hence the security of the system is fundamental and structural.
Bitcoin or some other digital currency may or may not have a future, although, I believe they will. Currency, after all, is about acceptance, and who knows how people will view things in the future. On the other hand, the blockchain is a revolutionary technology because it solves the fundamental problem of high reliability trust amongst strangers at a distance.
The first obvious area for blockchain application is financial services. If a consumer buys a pizza with a credit card, several days may pass before the merchant receives the money. Most of this delay is driven by the patchwork of complicated systems that laboriously verify the transactions. The same is true in exchanging shares of stock or exchanging currencies. Voting in political elections on a phone is not currently possible because of the systems that would need to be created to verify that the vote was legitimate.
The blockchain was created to solve one specific problem. By understanding the essence of the solution, it may revolutionize our lives.
-Jason Woodland
February 4th, 2016
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