What Is Blockchain? An Easy Introduction For Anyone

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Written by Alice Ko

Over the past few months, your introduction to blockchain may have been through mentions of  bitcoin in casual conversation or in the media. If you work in the marketing industry in any capacity -- as a marketing or social media consultant, designer, writer or advertiser -- you may have not even given bitcoin a passing thought. After all, you’re a creative! Who needs to spend time trying to understand the latest finance and tech-related developments, right?

Not so fast...

Bitcoin just barely skims the surface of the basics of blockchain, which is the technology behind bitcoin and all other forms of cryptocurrency. The introduction of blockchain will, in some way, disrupt just about every single industry in one way or another.

Richard Bush, chief product and technology officer at the New York Interactive Advertising Exchange of Adtech, has even said:

Every industry will face a blockchain disruption that will transform the internet and our society.

A recent report from the American Marketing Association underscores this fact: “the blockchain market, now worth approximately $600 million, is poised to grow to $7.74 billion by 2024, per Grand View Research.

A study by Juniper Research finds that "57% of large corporations say they are either actively considering or in the process of implementing blockchain technology, and approximately 66% expect full integration of the blockchain by 2018.”

Facts are facts. As these statistics show, blockchain is not merely a passing fad. This is my message to marketers, creatives, and working professional everywhere: please don’t ignore this. When some marketers and creatives chose to ignore the rising popularity of the Internet, waving it off as a passing phase, they ended up losing out majorly in the end. I urge you to learn, at the very least, the basics of blockchain.

I recently wrote an article outlining how I think this emerging technology will upend the entire auditing and accounting industry -- and I’ve received many questions on how I think it will impact the marketing field.

So I’ve distilled it down to the basics: This article is an introduction to blockchain that outlines in layman’s terms what you need to know about the basics of blockchain.

An introduction to blockchain: What is it?

It would be impossible to understand the impact that blockchain has on the world without understanding the basic concepts of blockchain. So here is an introduction to what blockchain is. 

The first thing to understand is that it is a ledger made possible through technology.

A ledger is a collection of records, similar to a database.

It is not a physical or tangible object and there is not just ‘one’ single blockchain. This ledger is essentially a type of software written by developers and engineers.

How is it related to bitcoin?

When first introduced to blockchain, I often hear a lot of people mistakenly interuse the term with bitcoin. These two are completely different things. Bitcoin is a type of digital currency. Blockchain is the technology (aka the software) that allows bitcoin to exist and work the way it does.

Ok, so what does blockchain do?

The basic concept is that the blockchain ledger allows for a group of transactions to be completely decentralized. This means there is no centralized unit, group, computer or organization that manages a certain system of records. Decentralization ensures there is no single authority overseeing the system or transactions.

The banking system, for instance, is an example of a very centralized process. This may be why you often hear blockchain mentioned in relation to the financial industry. Your bank is an institution that manages all the transactions within its system. It oversees everything, and any transaction that occurs within its system (such as withdrawals, deposits, loans or transfers) is managed by the banking system.

If you transfer money from your bank account to someone else’s banking account, you are required to follow the steps required by your bank to authorize this transaction. The bank verifies and keeps the one and only record of this transaction. Nobody else has access to the master banking system, except your bank.

Blockchain allows for complete decentralization of transactions and systems, which is why so many people are excited about its potential.

I don’t get it. Can you give me another example of how it works?

One of the best explanations of blockchain I’ve recently read was on the American Marketing Association’s website:

An easy way to picture the blockchain is to think of a spreadsheet that is duplicated thousands of times across a network of computers. Changes to the spreadsheet are mandated by a series of rules. Once information is validated, it’s permanently added to the spreadsheet, becoming un-editable. The spreadsheet is updated on every computer when new information is added. Once updated, the spreadsheet is a publicly available record of each change. There’s no centralized location for this spreadsheet, making it extremely difficult to compromise.

I hope this makes sense. Here’s one more analogy:

When you think of a blockchain, think of a Google Document (also known colloquially as a “G Doc”). You’re part of a big project with five other people and you all need to agree upon and finalize the strategy document you will be presenting to a client. Everybody has access to the exact same copy of this document via their computer, and everyone has the ability to view it and make edits. There is no centralized document. Everybody has the same version.

When you make a edit within the G Doc on your computer, as long as you’re connected to the internet, your edit is ‘synced’ on everyone else’s document in real time. Everyone else on your team can see your change. It’s not because your document was the ‘master’ document (the centralized document), it’s because your change was ‘verified’ and ‘copied’ onto everybody’s else’s document.

This is essentially the basic concept of blockchain. Verification is automated, there is no master record, and there is no master record keeper.

Why is it called blockchain?

All transactions in the blockchain ledger are considered a ‘block’, like a snapshot. Each block is a record of all transactions at a specific point in time. When a new transaction takes place, a new ‘block’ (aka snapshot) is created, and it is linked to the previous block -- like a chain.

What kind of information does it record?

It can track any type of digital record, such as payments, accounting transactions, shipment transactions, contracts, assets, and identities.

What are the benefits of blockchain?

Depending on who you talk to, some benefits may be considered cons, and some cons may be considered pros. If you only remember three exciting things about blockchain, remember the acronym DANA: Decentralization, Automation, Not Alterable

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DANA: Blockchain allows for Decentralization

Many systems we use on a regular basis are centralized. The most critical system is probably the financial services industry, as noted in the banking example above. Think about it: if you want to transfer money, all transactions are required to go through a verified banking institution and can take days or even weeks to be approved! And if you’re transferring money internationally, it is more difficult, more costly, and takes more time.

This is why people everywhere are excited about the possibility of a decentralized financial industry. Imagine hyper-liquid markets, having complete control over your own financial transactions, and never relying on a central agency (like a bank) to manage your payments again!

In theory, a completely decentralized financial industry would never close, which is quite a far cry from the current system where banks and stock exchanges like Wall Street are closed for the weekend and holidays.

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We are used to the status quo where our cash and assets are illiquid until the ‘centralized institutions’ open again on Monday morning. What would life be like if this dependency did not occur? Again, this has been become the norm and people everywhere are used to this. But doesn’t it blow your mind that your money is actually ‘trapped’ within a centralized unit?

The reason why cryptocurrency is all the rage right now is because it never sleeps and you have complete control over your own assets. All cryptocurrencies are decentralized as they are not managed by a central ‘bank.’

The financial services industry is just one example of a decentralized process that we currently use. Other systems that could be transformed by the introduction of blockchain include healthcare, supply chain, logistics, property ownership, legal, accounting, and of course advertising and marketing (future article to come on the impact of blockchain in the marketing industry!)

DANA: Blockchain leads to Automation

When a transaction occurs in a blockchain, the blockchain creates an automatic timestamp and encryption associated with this transaction. All transactions are instantly verified, and there is no need for a third party to additionally verify or audit the transaction. The most important takeaway of this automation is that the need for third party intermediaries is removed.

For example, Ethereum may be another term you’ve heard mentioned in relation to bitcoin or blockchain. Ethereum is a platform that runs on blockchain technology, and allows for the creation of smart contracts. A smart contract is a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions, or, an easier way to think of it is as a self-executing contract.

Everything in a smart contract is coded. The terms of a contract can be coded to be automatically recognized upon completion. A smart contract ensures that when all the terms of a contract are finished, a specific transaction kicks off, like an automatic payment into a bank account, or shipment of goods.

We often pay fees to third party mediators to facilitate these transactions (and expensive fees!) but the creation of smart contracts eliminates inefficiencies across many industries since third party intermediaries would no longer be necessary.

Take, for example, the real estate financing industry. Historically, it is an industry that has required many different third party intermediaries.

But blockchain introduces another option: If you’re looking to purchase a property, you could create purchase agreement through a smart contract, thereby simplifying the steps during the financing process. Since a smart contract is programmed to understand the conditions of an agreement and automate transactions such as cash transfers, this process would eliminate the need for brokers, lawyers and banks, which have traditionally been required to ‘facilitate’ purchases of real estate.

Imagine: Instead of paying processing fees to your bank and services fees to your broker and lawyer, you could execute a smart contract directly with the seller of the property, which is monitored and authorized by a trusted decentralized network: the blockchain.

In fact, there is currently much debate about the impact smart contracts will have on jobs that simply ‘facilitate’ transactions. Will smart contracts made possible via blockchain steal jobs from people -- including us marketers? Stay tuned, more coming on that note!

DANA: Blockchain is Not Alterable. It is Tamper Proof.

The blockchain is constructed so that all transactions are encrypted and cannot be changed. As such, nothing can be modified, destroyed or removed. All information stored in a blockchain is 100% reliable since tampering with the records is impossible.

For instance, Ethereum, as discussed above, has been programmed to eliminate any risk of “fraud, censorship or third-party interference”.

One industry that will surely be revolutionized by the introduction of blockchain’s ‘tamper-proof’ system is accounting and audit, as the traditional roles of accountants and auditors are to verify transactions. In fact, my personal opinion is that the role of accountants and auditors will eventually cease to exist.

Still confused?

If you’re a visual learner, my team and I curated a few videos to help with your introduction to blockchain! These videos outline the basics of blockchain technology in an easily digestible manner.

Blockchain expert explains one concept in 5 levels of difficulty (Wired)

How does a blockchain work? (Simply Explained)

19 industries the blockchain will disrupt (Future Thinkers)

For a further introduction to blockchain, take a look at these articles offering helpful overviews of the basics of blockchain:

What is a blockchain (How To Geek)

What is a blockchain and how does it work? (CIO)

2018 is going to be a massive year for the blockchain (Fast Company)

Coming up next? An in-depth two-part series on how blockchain will impact you as a marketing and creative professional (graphic designers, photographers, advertisers, writers -- this one's for you!) and tactical ways anyone can prepare for its impact.

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Written by Alice Ko
Edited by Serena Matter
Graphic design by Dana Lu

Before becoming the founder of marketing agency, Pivot Six, Alice earned her Canadian CPA, CA at KPMG. As a former finance professional turned marketing and business consultant, Alice hopes to be a bridge to help people without a finance background understand the basics of blockchain, cryptocurrencies, and how they can use it to their benefit.