It is hard to learn Blockchain without technical Background. Therefore we created a smart and easy to read Blockchain guide for you. Blockchain as a technology was developed to create a digital currency. The goal was to become independent from banks and yet ensuring full security when exchanging money. In the following article, you will learn Blockchain without technical Background. It aims to illustrate the basic idea of decentralization. To achieve this, we will explain Blockchain on a simple example.
Transfer money the old fashion way
Here is a simple example to explain the basic functionality of a Bank:
Let’s assume the four friends Alex, Clara, Bob, and Dave would like the opportunity to send money to each other. So in the classic model, they would have bank accounts. Banks administrate their accounts and check with each transfer whether the client has enough money available. Therefore, the bank is the central authority that controls everything.
So, if Alex is in debt and wants to send 10$ to Dave, the procedure looks as follows:
This process takes a while and usually incurs additional fees.
Learn Blockchain without technical Background
Now we have to realize the mentioned scenario with the blockchain technology. To do that we change the basic structure. Therefore we have to pass several steps to implement the changes.
In the first step, we remove the bank. Thus, no central entity is present anymore. Now the four friends are in direct contact with each other.
Let’s assume they are sitting at one table and could directly hand each other money. Before this happens though, we have to establish safety precautions and rules.
The open ledger as an information store
A general ledger is employed to keep track of everything. We enter all transactions. So, as soon as money changes hands someone has to document the process. It needs to be documented:
All members individually note and document these transactions. So, if one of the four friends thinks he has written down all transactions correctly, the others can check to see if it is true. If this is the case you can place the page in the center on the first page of the ledger. This ensures that there is always a book in the center, which records all transactions that were prior checked by all four friends.
Blockchain saves all transactions
In our example, Alex would like to give Dave 10$ that he owes him. Therefore, a corresponding transaction is created. Anybody can view and review information regarding this process. If the transaction is successful you have to enter it into the ledger and everybody updates their own copy with the new information.
From this information in the ledger, you can now see that Dave only owns 10$ and Alex is poorer by 10$. So you can use this information to check subsequent transactions for feasibility.
Dave can use his new fortune and give Bob and Clara a part of it. For this, he starts two new transactions. Everybody checks them again and then adds these as a block to the last information in the ledger.
The following information can be derived from the transactions:
So nobody can cheat
If Dave would like to send 5$ out of sympathy to Alex, this transaction would be denied. As can you can see in the ledger Dave only owns 2$. Thus, the transaction is no longer confirmed during the checking and will not attach to the ledger.
If Alex wants to burn the book out of frustration, restoring the book would not be a problem since everybody has a confirmed copy of all transactions. As a result, none of the friends can cheat due to the open ledger. Due to this transparency, all participants trust the book and do not need a bank as a trusted entity anymore.
Let’s summarize everything:
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