[1.2] Blockchain 101: Why

Why was blockchain created?

The first distributed blockchain was then conceptualised as a core component of the digital currency bitcoin, where it serves as the public ledger for all transactions. Through the use of a peer-to-peer network and a distributed timestamping server, a blockchain database is managed autonomously. The use of the blockchain for bitcoin made it the first digital currency to solve the double spending problem without requiring a trusted administrator. The bitcoin design has been the inspiration for other applications.

Broadly speaking - Bitcoin solves the problem of verification. It allows getting verified answers from a group of untrusted individuals (See my answer here for details on How Bitcoin Mining Works), instead of trusting a single authority to do the verification.

Narrowly speaking - Bitcoin is focused on the banking/financial system. It is meant to facilitate financial transactions directly between peers without clearing them through a central bank. As an open 'democratized' system, it should also reduce fees to the minimum the market would accept.


Using Bitcoin as an easy to understand example:

What problem does Bitcoin solve?

  • The problem that governments created by monopolising the issuance of currency and thrusting fiat systems of finance and currency upon the world. 
  • 100% voluntary and non-coerced or forced upon people
  • Users/owners are free to do with it what they will and use it in whatever way they like
  • Fraud/counterfeiting (which are standard practice in banking/government finance systems) are completely impossible
  • No central entity means no single point of failure and a distributed mining/accounting system means an incredibly resilient and powerful network (The Bitcoin network outperforms the top 500 supercomputers combined | ExtremeTech)
  • Inflation (creation of money) happens at a stable rate and halves every four years, creating a limited supply of 21 Million Units - this solves a problem that central banks and governments have created
  • Free transfer and free to hold - this solves the problem that banks created

In the long run I see the blockchain enabling a continuous trusted network. That network will connect all humanity in a way that will forever change how we make decisions.

  • Imaging no longer worrying if yelp ratings can be trusted because they can be backed by consensus.
  • Imaging no longer having to carry a drivers license because your connected device is authenticating you instantly via a trusted network.

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