Why Do Blockchains Exist?
Now we have a general understanding of how a blockchain works. But why do blockchains exist? Let’s first understand how you interact with the non-blockchain world. Blockchain provides massive advantages in dealing with four main aspects: Permission, Trust, Privacy, and Security. Let’s look at a bank, for example. In the non-blockchain world, you have some money (in the form of physical banknotes). This money (physical banknotes) is yours, and you can do with it what you please, exchanging it for goods and services. However, once you give your money to a bank, the dynamic changes. When you want to get your money out, the bank gives you permission to do this. If the bank did not want to give you your money or can’t, there isn’t much you can do about it. 99.999% of the time, this would not happen or be a problem for you, but the factor remains- the bank has the power to allow or disallow you to withdraw or spend your money.
When you ask the bank how much money you have with them and they tell you “$100,” you are also trusting the bank’s word. You are assuming that when you go to withdraw the money, it is there in the first place. You are also trusting that the bank is not doing something irresponsible with your money.
Additionally, you are also expecting the bank to respect the privacy of your sensitive information. You are assuming the bank is not disclosing your sensitive information to third parties unless your contract with the bank states otherwise. Some corporations and institutions might take any opportunity to profit off of your data and information, provided it is within the law and the agreement between you and the organization. Many people legally agree to things without fully realizing what they are agreeing to.
Lastly, you are entrusting the bank to protect your money from criminals, hackers, and bad actors through various security measures. It is the bank’s responsibility to make sure your money is safe, not yours. Although banks are sitting on decades of security technology advancements, massive hacks of major institutions do happen- namely, the Equifax hack of 2017 and others.
These same four aspects apply to other sectors as well, such as identity data, medical information, assets, social media content, and more. Similar examples exist for all of them. When you introduce a blockchain though, something interesting happens.
You do not need permission from a blockchain to interact with it, because there is no one person or entity that controls the blockchain activity. Thus, you can rest assured that you can interact with other blockchain users unencumbered. You do not need to trust any one person or entity with the money/data/content that you add to the blockchain. It will always be there until you transfer it somewhere else. Moreover, it can never be deleted. A blockchain has the ability to keep your identifiable information private, as it does not require such information to interact with the blockchain in the first place. Lastly, a blockchain’s cryptographic nature provides the highest security available, provided the network is properly decentralized. Blockchains exist to “cut out the middle man,” as some people view the middle man to be a possible point of vulnerability or failure in these four key areas.