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Beginner’s Guide to Blockchain - Explaining it to a 5 Year Old
Traders Magazine Online News, September 17, 2018
Everyone is talking about Bitcoin these days, from your barber to your friends working at stock market. Don’t worry this article is not about several other articles talking about making money from Bitcoin. However, I will try to help you understand the underlying technology which makes Bitcoin work and how this concept of blockchain can be useful in the coming decades.
Historical Overview
October 31, 2008, a white paper from an anonymous person or organization named Satoshi Nakamoto was published which explained a novel approach to send money from sender to receiver directly without involving any financial intermediaries. The paper gave a name to this concept?—?Bitcoin. Since, Bitcoin uses some underlying concepts of cryptography, this new way of exchanging money was categorized as cryptocurrency. The only purpose of Bitcoin was for financial transactions but researchers realized that its foundational technology can be harvested to build other secure and robust applications that can revolutionize the way current systems work. “Blockchain” was the name given to this foundational technology. Lots of technical words? Let’s simplify!
What is Blockchain??—?A Real World Analogy
Let’s imagine that you live in a city, which has a big parking space to park 200 cars at one time (assume that the parking space just has a ground floor). This parking space has a main gate which stays locked and is only opened when a car moves in or out. Now let’s analyze this single parking building from different points of view —
- Price: Since some private company built this parking space exclusively for parking purposes and all the maintenance cost will be beared by the owner company, there will be a high renting fee for renting out a single parking space.
- Security: If thieves get access to the main door, they can easily get to your car (take its wheels, or fuel, or damage the brake, anything!)
- Limit: What if the number of cars in your city grow from 200 to 300? The parking space will not have enough space for all cars and some other private agency will have to built a new parking space.
- Trusted: You trust the parking space company and they are responsible for taking care of security and reliability.
- Centralized: Since all the cars are in one building, we can consider it to be a centralized parking.
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