Towards peer-to-peer interaction of a global scale. Provenance developer Thibaut Schaeffer provides an introduction to some of the groundbreaking technologies we use to power trusted transparency.
Think of your neighbour Bill. You know him well enough to be sure that if you lend him your drill, he is going to give it back to you tomorrow. If he breaks it while using it, you can be sure that he will buy you a new one, because, you know, he’s your neighbour. Your children hang out together in the backyard and he feeds your cat when you’re away.
Let’s suppose Alex lives on the other side of town and sends you an email asking to borrow your drill. You don’t know Alex, you’re not even sure how he got your email address. Thus, you’re not going to lend Alex your drill, even if he comes to pick it up at your place and pays you a fee.
What differentiates Bill from Alex? In one word: trust. You can trust Bill, while you can’t trust Alex.
Now let’s say you signed up to that new drill-lending app, and you get a request from Alex for your drill. Chances are, you are going to lend your drill to Alex, not because you trust him more than when he sent you an email, but because you have a third party overseeing your transactions and which, this time, you can trust.
From Airbnb to Visa to TripAdvisor, using a third party is the most widespread way to enable interactions between parties that do not trust each other. Banks and marketplaces are thus in the business of brokering trust between citizens of the world. It wasn’t until 2008 and Satoshi Nakamoto’s Bitcoin digital currency that an alternative was found: for the first time in history, a global, open, decentralized network enabled anyone to transfer value without relying on such a third party. The data protocol Bitcoin is based on is called a blockchain. It consists of a ledger of events that is shared across a network of personal computers.
So, how does our drill-lending app work on a blockchain? Instead of having the central platform oversee your transaction with Alex, it gets broadcasted to thousands of people like you and me whose personal computers witness that transaction, agree that it happened, and write it into the common ledger. If someone wanted to change that transaction on the blockchain, they would have to convince the thousands of other validators that they are right to do that, which is highly unlikely. You don’t need to trust a platform, you don’t need to trust Alex, you only need to trust the protocol itself.
With a blockchain, you can interact with Alex, who you don’t trust, just like you would with your neighbor Bill. It brings peer to peer interactions to a global scale.
Transferring money using Bitcoin has been the major killer app on the blockchain since its inception, extending financial inclusion to areas suffering from broken banking institutions. Today, many projects are taking advantage of blockchain technology for non-financial use cases, from music rights management to peer to peer energy markets to supply chain transparency, which is our mission at Provenance.
Still stuck? Institute for the Future gives one of the best high-level introductions to blockchain technology:
If you’re feeling like diving in what is actually going on under the hood, Ledger Wallet’s technical presentation goes in depth on the incentive mechanisms making blockchains possible with the example of Bitcoin:
Lorne Lantz’s TEDx talk goes through the basics of the blockchain in the context of decentralisation. It also gives some practical applications:
Found another great one? Do let us know and we’ll add it.
At Provenance we are very excited about blockchain technology, which has been at the core of the project since the beginning. But beyond the hype, what does blockchain mean and how does it work in practice? We hope this series helps you understand the what, the how, and the why of blockchain.
Stay tuned for Part II.