By following a sophisticated set of pre-defined rules, a blockchain can allow transactions made on the network to be verified by a distributed network of peers. 

It’s like a super tricked out excel spreadsheet where everyone has a synced-up master copy. Conversely, you could also think of it as no one having a master copy. 🙂 
Bringing this level of verification to transfers made among networks where control is distributed is a pretty big deal. Normally, we rely on a central authority or multiple central authorities to validate transactions. This arrangement is particularly true for money, where we use large financial institutions. With bitcoin (as a currency), the barrier to entry and costs of participating in banking could be reduced. Things can get way more efficient, if you want (but that may not always make sense — some hurdles exist for a reason).

In addition, that network of peers may have each had their data in silos before blockchain tech came along. Silo’d data can lead to unnecessary redundancies and inaccuracies. With a blockchain, the computers in the network all have a constantly updated copy of the history of transactions on the blockchain since its inception. And, it doesn’t matter if they  trust each other because they all have to verify a transaction before it can be added to the chain. And, the validity of the transactions can be audited with MATH!

The existence of a shared record of transactions is also why people refer to a “shared ledger” or “distributed ledger” when they talk about technologies in this space.

My current thought is that “shared ledger technology” is a broader category than “blockchain technology”.

Shared ledgers

The shared/distributed ledger concept: imagine we all get a constantly updated copy of the exact same Twitter feed. We come up with a rule that when a new tweet is posted, we all have to go through a certain process to agree on what it says and what handle it comes from before the tweet can go live. We’d verify the tweet against those that came before to make sure things checked out.

So, if one of us tried to go back and doctor a tweet that happened last February, when it came time to decide if it could go live, everyone else would say, “Not cool, man. We all know that’s not the state of things,” and reject the change. So, the tampered-with tweet would never be posted to the feed.

This example demonstrates how a shared ledger allows us to validate something as a distributed network. Of course, we don’t have time to sit around reading and auditing each other’s tweets all day until we agree with thousands of other people, so we can have computers automate the process for us.

As mentioned above, traditionally, we’ve outsourced this kind of validation to a central authority like Twitter. But distributed ledger technology (DLT) can allow us each of us to participate in a part of this process (through our computers), and potentially reduce the need for central servers. Machine empowerment to the people! Of course, distributed ledger technology is complicated; this example simply conveys the approach it enables.

Open questions remain as to the best way of auditing transactions when you also need privacy. Independent third parties will likely continue to have an important role.

And, I think it’s really nice that we can let machines vet transactions histories to a certain degree. I don’t think I’ve ever heard someone say, “YESSSSS, I have so much paperwork to do this weekend!” We’re human; let’s get some sun. And invent stuff.

What’s THE blockchain?

In the past year or so, it’s become more popular to use the term blockchain as a singular or plural noun, instead of saying “the blockchain”. I think the “the” comes up if you’re talking about the Bitcoin blockchain. Outside of that, there’s other blockchains people have been working on, particularly since invention of Ethereum, which is a decentralized computer processing platform that has its own blockchain.

Want more blockchain-y deets? Did you know that “hashing” is a big part of blockchain technology? Click here to see what I mean.