What is blockchain and why does it matter

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It is a priority on the World Economic Forum’s agenda

Blockchain is an idea and not a model that seeks to redefine our economic and legal system. Here’s a way to understand Blockchain’s intuition from scratch according to Harvard Business Review and the World Economic Forum:

Blockchain’s value resides in what is common across all communications and what’s not in the current financial structure. Communications refer to our possibility to express an idea and for it to be interpreted and understood by another person. This capacity to interconnect ideas has been crucial for human development as any form of statement is, inherently, a contract.

A contract is an agreement of at least two parties to safeguard a definition or any kind of value. By creating a contract, parties are cooperating towards the common adoption of a concept, whatever it may be. Most importantly, any contract is underwritten by direct trust between the agents and it permits forthright communication.

In this scenario, agent A communicates an idea to agent B making sure the message is expressed in the most common terms for both parties. Then, the mutual understanding fulfills the promise of communications, as ideas are efficiently expressed; the target was met directly between agents’ A and B, while language is kept as a reliable resource.

In our financial system, the act of communication is called a transaction. In today’s paradigm of business, the only way someone will cooperate towards the execution of a transaction is because someone else assumes the risk of the counterparty, the risk of deceit. Our system to communicate money has always needed an intermediary that keeps faith in the promise. Blockchain allies with communications to figure out a way to improve the model.

The question is, given our current level of technical and human development, how can we eliminate this financial intermediary without creating instability?

Blockchain’s intuition requires you to picture yourself in a dark room with other people having the same problem. The initiative proposes that a way to trust each other without an intermediary would involve having a single and non-editable book of records. Every time something is communicated, it must be written down on the notepad. In this system, the book would have an entry for each monetary exchange, asset, labor agreement and even vote; every contract is kept with a private code, and only one person can have it at a time.

If such communication is achieved, the book shall have every transaction recorded with a key to prove the connection between the counterparts. The book Is public and known for everybody – it’s a common law that everyone can follow, and everyone can exercise when needed.

In a reality of 7+ billion possible users, blockchain aims to be that unique book of records. The blockchain is basically a notepad with transactions that get “layered” as a user adds an action and sends to the next. Its operation is the one we could expect in the dark room example, only that the book can be passed from person to person with atomic accuracy thanks to the internet, creating a new universal language for the communication of contracts.

The system is called a blockchain because it’s a unique block of information that spreads sensible information efficiently allowing partners to connect via contracts without any different intermediation other than the internet connection. It proposes a fair and global trade system that does not require an intermediary.

If at least a big majority of relevant information and transactions starts being underwritten in a Blockchain, the more human pressure to its legal backing will arise. Thanks to the internet and Bitcoin, we could make a monetary or academic exchange with a legit counterpart consisting of everyone without paying no-one. Blockchain is a system of social self-regulation, and if it catches momentum, it could change the course of history.

This is the idea behind blockchain, the proposed notepad to keep track of our future.

Latin American Post | David Eduardo Rodríguez Acevedo

Copy edited by Susana Cicchetto