Comparison of Traditional Systems With Blockchain
I am sure you can find many definitions of blockchain on the internet, so I will try to explain the meaning in my own way. Let's compare the traditional system with the blockchain system.
Traditional System: Trust With Third Parties
Suppose you buy a cup of coffee at your favorite café in the Mall. When you pay, you swipe your credit card on the café card machine. Here is a transfer of money from your account to the café account. But you know where this transfer really happened? Why can your café believe that your money has been transferred to their account? This is because there is a third party that is trusted by you and your café. In this case, the third party is your bank, or the card network you use (Visa, MasterCard, or Amreican Express). Your café trusts the third party.
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But what will happen if your bank system, or your credit card network is experiencing a technical problem or hack?Blockchain System
Blockchain is a system that does not use such third parties. In essence, records of transactions that have occurred, stored by many computers scattered in the network itself. So it would be harder to hack a system of hundreds or thousands of computers, and chances are small for all of those computers to be interrupted at the same time.
So if you for example pay for your coffee using Bitcoin (one of cryptocurrency), Bitcoin for the payment of the coffee is transferred from your Bitcoin address to your Bitcoin cafe address in peer-to-peer. And these transactions will be recorded on all the computers scattered in the Bitcoin network.
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Simple Analogy To Explain How Blockchain Works
- Non-Blockchain Example: A RT Trusting a Third Party
In a RT with 15 houses, Mr. RT trusted the recording of financial transactions to Pak Budi. Pak Budi is in charge of recording anyone who has not paid the monthly dues of the RT, and also which homes are owed to another house if they hold a joint meal. Here, Mr. Budi is a party entrusted as an accountant. The 15 houses in the RT, trust Mr. Budi to make accurate records. Surely there are some risks here:
What if Mr. Budi's financial records were stolen by irresponsible parties?
What if Mr. Budi tried to steal RT cash money?
What if the friends of Mr. Budi tried to manipulate Mr. Budi to remove their debts from Mr. Budi's records?
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- If This RT Using Blockchain System
If we want to change the RT above to use the blockchain system, then Mr. RT starts by asking the residents: who are those who are interested in becoming an RT accountant. For example, there are 9 interested residents, so these 9 people will record all the transactions that occurred in the RT, and their records will all be identical. In this way, it would be more difficult to steal 9 notebooks, or to manipulate 9 different people.
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What are the benefits to be an accountant in this RT?
Cryptocurrency
Call it in this RT, all residents love chocolate, so we will use chocolate as currency / money used here. These 9 residents will work as accountants in the RT, and they will compete for chocolate rewards from their accountant's work. In the world of blockchain and cryptocurrency, these 9 occupants are also called miners because they work to mine chocolate.
If there is a complex transaction calculation, for example the 15 houses in RT all hold lunches at the restaurant, and everyone orders different foods so the payments are different, the 9th accountant will compete to calculate the most immediate transactions. Whoever completes the earliest calculations, and can be confirmed by 8 other accountants that his calculations are correct, then he will be given a chocolate gift. This is why miners ideally have a strong and fast computer system.
However, apart from these 9 accountants, other residents in the RT can also trade the chocolate itself, because this chocolate has value (there is supply and demand). And if this RT has a new population, the demand for chocolate will increase, so the price of chocolate will rise due to higher demand while the supply amount (or supply of chocolate) is fixed.
source of cryptocurrency
http://www.andryo.com/id/blockchain/
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