What Is Blockchain – And What Is So Exciting About It?

A lot is written and spoken about Blockchain these days – but often very technically, theoretically and difficult to understand. We will try to explain Blockchain to you as simply as possible.

For the sake of simplicity, we leave out everything that does not necessarily have to be and only causes confusion:

What is Blockchain anyway? The word blockchain comes from the English language and literally means simply block chain. The blockchain is first and foremost a database, i.e. a piece of software in which data is stored. The first block is the “creation block”, all other blocks are first checked and then appended chronologically behind. So far, so good.

Who invented the blockchain? The concept was invented by a gentleman with the pseudonym Satoshi Nakamoto (maybe his real name is Craig Wright, maybe not) for the virtual currency Bitcoin. Satoshi needed something like a common and public cash book for all users. It’s something like a huge Excel file, but you can only add new entries and not delete or change older ones.

Isn’t Blockchain the same as Bitcoin?

Blockchain as a theoretical and technical substructure is much more than bitcoin or other similar “crypto currencies”. Bitcoin behaves to the blockchain like the World Wide Web behaves to the Internet – a concrete application versus the whole platform.

What’s so special about Blockchain?

First, the blockchain is a distributed database. It is not on any servers, but every user has his own complete copy. Second, the block chain is forgery-proof: Each new block is connected to the previous block and contains the history in the form of its checksum (a kind of checksum). In addition, each block also contains the checksum of the entire chain.

This makes the order of the blocks unique. Thirdly, all data is stored in encrypted form. Together, this prevents (effective) corruption and manipulation. The whole network legitimizes itself mutually and becomes its own “Source of Truth” (but a bit of a programmer speaker, sorry).

What can you do with Blockchain?

In principle, transactions or information stored in a blockchain are real and unchangeable and therefore no longer need anyone to manage or authenticate them. Blockchain makes business models possible without intermediaries, for example securities trading without banks or house purchases without a notary.

“Smart Contracts” with programmed rules and functions could replace conventional contracts on paper, and musicians and other artists could exploit their digital rights in a differentiated way. The basic aim is to focus on the people involved and to enable peer-to-peer communication between them.

And what does this mean in practice?

Blockchain technology has particularly great upheaval potential for the financial sector. The topic is already being researched in a correspondingly hectic pace (of course you don’t want to miss the train and suddenly become superfluous). Overall, Blockchain promises that financial services will become faster and cheaper. Not only for customers – banks would no longer need to maintain their own central and expensive IT infrastructure either.

In other areas, development is not yet so far advanced. After all, Greece and Honduras are considering implementing their cadastres with Blockchain. In the distant future, elections may also take place somewhere in the world where, thanks to Blockchain, fraud is no longer possible.

Does Blockchain only have advantages?

Despite all the euphoria about the new, almost unlimited possibilities of the blockchain, the new technology has its weaknesses. These include in particular the (still) low individual scalability, the comparatively low data throughput, limitations in storage space, difficult to manage authorizations and last but not least the difficult integration with existing legacy systems in the company.

Today, Blockchain is above all a dream of the future – and a lot of hype. Most ideas are still undeveloped, the prospects of success can only be guessed in many industries. That’s why blockchain isn’t everywhere where it says blockchain: According to analysts, many current projects are more like “blockchain washing” similar to the attempt to sell legacy IT as “private cloud” in the early 2010s, or “blockchain tourism”, i.e. small proofs of concept outside the core systems.