Blockchain has far surpassed the stage of being a tech-world buzzword, and in 2019, it’s increasingly important for businesses and entrepreneurs to have a clear understanding of the technology and how cryptocurrency works. However, even blockchain experts have found it challenging to explain the root concept to newcomers, so don’t worry if you’re struggling to wrap your head around it. At its core, it’s really just a method to track information. Even so, the way blockchain functions completely flips most systems we know and use daily upside down. With that in mind, we’ve chosen two clever, easy analogies that effectively break down tricky aspects of blockchain in layman’s terms.
This comparison is a great place to start, because it conveys a crucial detail about blockchain and its use of distributed ledger technology: adopting a decentralized (“trustless”) system, as opposed to the centralized ones we’re used to. As Kevin Kononenko shares on CodeAnalogies: imagine you’re a student in a high school math class of 30 students, completing various assignments and tests in order to pass. In the centralized system we’re accustomed to, the teacher is entrusted to grade all of the assignments and tests for the class, ensure there is no cheating, and determine what goes on everyone’s report card.
However, this process is actually quite inefficient (think of the usual time needed for 1 teacher to grade 30 tests), risky (suppose the items they’re grading are lost or damaged), corruptible (if you’re the troublemaker in the class, for example, the teacher may instantly grade with bias), and costly (the teacher spends too many valuable work hours grading tests and assignments). So instead of having the teacher grade everything, in a decentralized high school class, all of the students would grade each other’s assignments publicly, using an answer key. Grades would all be public and enforced by the group, which is essentially how the blockchain system works. It’s a shared record that every person in the group can access. Any changes that are made to the record can be verified by everyone in the group. CodeAnalogies takes this story even further here.
While the high school class comparison does an excellent job at explaining the ‘why’ of blockchain technology, we’re also fans of the glass box analogy, which better explains the ‘how’ in a really visual way. It’s been attributed to multiple authors as it has evolved, but seems to have originated on the forum Bitcoin Talk back in 2013. In short, picture a huge, 24-hour bank filled with many glass boxes. The boxes are essentially clear safes with unique numbers; everyone who visits this bank can see how many coins are in any given safe, and anyone can put money in anyone else’s safe, if they know that person’s safe number. This is basically the structure of cryptocurrency platforms like Bitcoin, but this imagery can also help explain other complex aspects of the distributed ledger technology on which they run – for example, how one can still have privacy in a seemingly public domain like this.
Even though the safes are made of glass and everyone can see what they contain, the only thing tying a safe to a person is its number. So, simply put, if you keep your safe number a secret, no one will determine that it belongs to you. As the original poster on Bitcoin Talk elaborates, “If you open another account, and get the keys to another safe, but you never tell anybody the identifying number on that safe…everybody can see that safe and see how much money is in it but nobody knows who owns it. That way, if you want everybody to know which safe is yours so they can send you money, but you don’t want anybody to know how much money you have, you can secretly move the money to your second safe and never tell anybody which number is on that one.”