There has been a lot of discussion in recent months about Blockchain. Hugo Cam, Project Manager at Trans Solutions Systems, will give a simple explanation of what Blockchain is.
The reason I write this article is because we need to create a common language through business and technology on this topic. The objective is to explain this topic in a simple way so that it is properly understood.
When you send an email or a Word file, the original document is not actually sent. It is a copy, which is fine, but when it comes to assets such as: money, stocks, bonds, fidelity points, intellectual property, music, a vote, etc., sending a copy is a bad idea. This is where the Blockchain concept is introduced.
“Blockchain”, may not be the most clamorous word in the world, but I think it is the next generation of the Internet. It holds a great promise for every business and for society.
The first things we have to understand are two basic terms: Bitcoin and Blockchain.
* official statement Bitcoin is a digital currency. It’s digital money.
* my sources Blockchain is the technology that allows moving digital currencies or assets from one individual to another.
So, after we understood the basic terms of Bitcoin and Blockchain, let’s concentrate on one of the problems that Blockchain tries to solve: money transfer.
I want to explain it at a conceptual level, that is, to focus on that concept and not go into the details of its implementation.
Currently, if a person “A” wants to transfer money to a person “B”, say from the United States to Peru, typically a third reliable company is used (a bank, or any money transfer company). Usually it works as follows:
First, person “A” says I want to make a transfer to “B” and asks the third reliable company to transfer the money to “B”. The reliable company identifies “B” in Peru, and also identifies the person and his bank account and performs the movement of the money, taking their corresponding commission. This usually takes about three or more days. It requires some time.
What is the Blockchain trying to solve?
First, Blockchain allows the transfer of money without the participation of the trust entity in the middle, in such a way that people can interact directly. In the second place, Blockchain does the transfer of money in less time. In fact it is immediately, and at a lower cost than when using a third party mediating company.
Now let´s start. How blockchain solves the problem of money transfer? The first concept that we are going to mention is the Open Ledger and I will illustrate it using an example:
We have a network of four people (A, B, C and D) who want to move money between them. Suppose that in the beginning the person “A” has 100 dollars, which means that, in the network, “A“ starts with 100 dollars. All the others do not have money.
Let’s say that A wants to transfer fifty dollars to B. What is going to happen is that we are going to add a transaction, a move from A to B of fifty dollars and link it to the existing transactions.
Then, we assume that B wants to move 30 dollars to D, so let’s do the same: link another transaction in the ledger chain which says that B moves thirty dollars to D.
Finally, D moves 10 dollars to C, which is recorded as a transaction in the open ledger.
What has been described is the concept of “open ledger”. As we´ve seen, it is essentially a chain of transactions, hence the name Blockchain.
Just note that the block design has more details in its implementation that will be reviewed in a second part of this article.
This chain of transactions is open and public to all the participants, and allows for everyone in the network to know where the money is and how much money each participant has. Secondly, everyone can decide if the transaction is valid or not.
For example, if “A” tries to move 150 dollars to C, everyone in the network can immediately see that this is not a valid transaction, consequently, this transaction will not be part of the chain.
In a second part I will comment on how this open ledger is distributed.