What is a blockchain? This explanation is the best!

An anticle from Sina Technology, and translated by Warren.

The original link: http://tech.sina.com.cn/i/2016-07-06/doc-ifxtsatn8192223.shtml

Blockchain technology is not difficult to understand for people who are dealing with the bitcoin everyday(referred to as “coin circles”). But for people outside this circle, the concept is hard to understand.

In the “coin circle”, there is a story of “old village chief” (an idea of a lawyer who has worked for many years). After reading this story, you can definitely have a preliminary understanding of the “blockchain.”

The story is like this…

Once upon a time there was a mountain, there was a village in the mountain, and there was an old village chief in the village. Usually, the villagers carry a bag of gold bars to exchange goods (really rich village!!!), but this method is particularly inconvenient.

Later, one day, the old village chief suddenly announced that all the gold bars would be placed in the treasury of the village committee, and then he would help everyone to keep accounts, in order to facilitate the exchange of goods. In return, he can extract transaction fees and daily management fees from the transaction.

For example, if Mr. Zhang wants to use 4 gold bars for a cattle of Mr. Li, the old village chief must first check if Zhang has 4 gold bars. If there is any confirmation, he will transfer the gold bars to Li on the books. Then let Li give the cattle to Zhang.

At first everyone felt very convenient, but slowly all kinds of problems began to be exposed.

As the volume of transactions increased, the old village chief was too busy to record all, sometimes the old eyes were dim, and the account was wrong. Looking at the gold bars in treasury each day, the old village chief’s heart was tickle, and occasionally the villagers’ gold bars were recorded in chief’s own name, the villagers will endure once or twice, but the old village chief became more and more bold, and finally everyone can’t bear it.

One day, the grandson of the village chief was naughty and playing with fire. Some of the books were burnt, and the accounts of the villagers were all chaos.

There is another village, which is very poor, so we call the above rich one “Rich Village”, the poor one “Poor Village”.

The above is a problem within the “Rich Village”. There is still a problem during the period: although the villagers of “Rich Village” would like to record the transaction with a villager in the “Poor Village” next door, the person in the “Poor Village” said, “The money of our village can be recorded on your books if everything goes fine, but your village still have big issue, we cannot believe you, especially the Chief.”

Just when everyone was having trouble with these problems, a person named Nakamoto suggested a method called “book chain” from the time tunnel (Note: Nakamoto was an iconic figure in Bitcoin technology).

The gold bars are still placed in the “Rich Village” committee, the initial accounts are still converted into records on the books, and everyone knows every record of the book.

In the first transaction, Zhang had to use four gold bars for Li’s cattle, so everyone began to rush to settle accounts. Wang first calculated the general ledger that “Zhang does have 4 gold bars and traded with Li” (the public treasury will give a little money to the first person to calculate the account), Wang can get rewards with this, but he also needs to tell the whole village the transaction through the broadcast, and then everyone uses the “001” account page to record the transaction and put it in the ledger;

When Liu wanted to use three gold bars for the pigs of Chen Qi, everyone started to reconcile the books and 001 accounts on this page. Ba first calculated that “Liu did have three gold bars and exchanged pigs with Chen Qi”, Ba will receive the reward and simultaneously tell the whole village the transaction through the broadcast, then everyone will use the “002” account page to record the transaction, and write “On the last transaction, please see 001”, and then connected to “001 “, together placed it in the ledger;

The whole process is to reward the calculation, record the transaction and broadcast the transaction. By analogy, the ledger constitutes a ledger chain.

This solves the above problems at the same time: according to the order in the book chain, it is possible to determine the assets of any villager and the transaction situation, even if it burns a book, it does not matter, because everyone has a copy in their hands, and it is exactly the same; since the books and algorithms are publicly broadcast and ordered, this eliminates the problem of any fraudulent and repetitive transactions; similarly, because it is open for accounting, the villages in the next door can come over to trade.

Since then, the villagers have lived a happy life.

After reading the story, some people may ask what is the blockchain exactly?

Textbook version definition: blockchain (or Block chain) is a distributed database, a string of data generated by cryptographic methods, each block contains a bitcoin network transaction information , used to verify the validity of its information (anti-counterfeiting) and generate the next block.

According to the above story, it is easy to understand. “001”, “002”, “003”… each number is a “book page”, which is a “block” in the concept of blockchain. When brought together of the page, a “book” is formed. The physical account book is an obscure “blockchain”.

Since the blockchain is a book, what is the difference between this book and our traditional book? This requires starting from the characteristics of the blockchain itself.

1)Decentralization
The villagers can no longer rely on the “central figure” – the trust of the old village chief, no longer worry about the risks that the village chief may have in the process of accounting and management. The old village chief can also “liberate” to do other things.

2)openness
The system is open, and the data of the ledger is open to everyone (whether it is Rich Village or Poor Village). Anyone can check the data on this page of any code in the book. In this way, the transaction between the village and the village can be realized.

3)Autonomy
An agreement has been reached on how the books are recorded among the villagers, and the agreement is open and transparent. The villagers can achieve full trust and further autonomy, and each transaction can be fully transparent in the books.

4)Information cannot be tampered with
Once the transaction information has been verified by the villagers and added to the ledger, it will be stored permanently. The modification of the account on the account of a single villager is invalid, so the data reliability of the book is extremely high.

As far as the current situation is concerned, traditional financial institutions such as banks and insurance are still playing the role of “old village chief”. They need to rely on the credit of the state or institutions to enable users to have a sense of trust in them.

Now when you mention the blockchain, you will talk about bitcoin. What is the relationship between the two?

The blockchain is the underlying technology of Bitcoin, and Bitcoin is perhaps the most famous application in the blockchain, and there will be more applications in the future blockchain technology.

The identity authentication system is another one of the applications in blockchain. In addition, smart contracts, securities trading, e-commerce, Internet of Things, social communication, file storage, and equity crowdfunding are all areas where blockchain technology can be applied.

Blockchain technology has made banks, exchanges, auditing companies, and technology giants eagerly await. According to Sina Technology, by the end of 2015, more than 20 of the world’s top financial institutions and venture funds have announced their participation in various blockchain application development projects.

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