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Blockchain 101: Everyone’s talking about it, but does anyone really understand it?

No one can edit a blockchain without having the corresponding keys, which means users can only edit the parts of the blockchain that they own. This establishes trust, verifies identity, and fills the role of recording the transfer – a task that is currently carried out by traditional, centralised institutions like banks, exchanges or government agencies.

There are three kinds of laypeople you are likely to encounter at an event with a blockchain panel on the agenda.

First, the sort that still shake their head and say: ‘it’s never going to catch on’. The second set are all suited up with the latest fad speak and rattle off all the right jargon to sound nearly expert enough, even if they don’t always know what they’re talking about. The third group typically lament the colossal loss of not investing in bitcoin.

From real estate to banking, supply chain, education, retail, healthcare, art, government and more – it is impossible to go to any sector conference in the UAE today that isn’t having a discussion around blockchain.

Panelists, seemingly speaking a secret language that no one really understands, earnestly and emphatically insist that blockchain is, unequivocally, the future – and that people had better start getting on board, quick.

While blockchain has entered mainstream discourse, let’s be honest, the extensively broadcast buzzword is still baffling business laypersons who, by now – as popular internet memes suggest – are likely thinking ‘I don’t know how this works and at this point it’s too late to ask’.

What is blockchain?

First off, here’s what it’s not: Blockchain is not bitcoin, nor is bitcoin blockchain.

Roberto Mancone, chief operating officer at Dublin-based We.Trade Innovation DAC, counts this as one of the oddest questions he’s been asked about blockchain. We.Trade is a joint-venture company owned by 12 European banks, that developed and licensed the first blockchain trade platform for commercial clients and their banks.

In an interview with Arabian Business ahead of the Future Blockchain Summit in Dubai, he says: “Is blockchain bitcoin? Answer: is internet Amazon? If not, then you are on the right track to understand what blockchain is and could become.”

The most commonly used internet definition refers to blockchain as a “distributed, decentralized, public ledger”. Other web explanations refer to its more literal meaning: Just “a chain of blocks”, wherein “blocks” are made up of digital pieces of information that are stored in a public database, referred to as the “chain”.

The most important thing to realise is that the technology cuts out middlemen and allows people to transact directly, explains Mohammed Alsehli, founder and CEO of UAE-based public blockchain start-up ArabianChain Technology. “Blockchain is a technology revolution that is helping us to get rid of intermediary parties and creating a network based on value and trust,” he says.

A blockchain allows anyone to directly send ‘value’. A person transacting on the blockchain has a private, cryptographically created key to the blocks of information that he or she ‘owns’.

Using the private key and someone else’s public key makes it possible for a person to transfer the value of what they own, which is stored in a section of the blockchain. For instance, a key can be used to transfer a block containing a unit of cryptocurrency, like bitcoin, that has financial value.

“The major difference between the internet and blockchain is that the latter will enable the internet of value in the future,” Alsehli explains. “The internet today is the internet of information. The information base creates transactions of data. Blockchain is giving those transactions value. For example, if you’re sending a picture of a cat to someone, it’s actually a copy of the original picture on your phone that you are transferring. With blockchain you would send the exact token, so it’s the exact value, and you cannot resend or resell a copy. With that token transfer, you have sold ownership of the picture. This is Internet 3.0.”

Tokens can represent money, ownership rights to cars, real estate or phones, intellectual property or anything that has a value associated with it.

Why does blockchain matter?

No one can edit a blockchain without having the corresponding keys, which means users can only edit the parts of the blockchain that they own. This establishes trust, verifies identity, and fills the role of recording the transfer – a task that is currently carried out by traditional, centralised institutions like banks, exchanges or government agencies.

This ability to transact directly, securely and more quickly has the potential to disrupt intermediary businesses and solve age-old security and data privacy problems that plague centralised systems.

It also avoids duplication of data in separated ledgers, reduces redundancies and cost, We.trade’s Mancone says, adding that blockchain has “the potential of rewriting business models”.

Phil Chen, decentralized chief officer at Taiwanese consumer electronics company HTC, says he is a big believer in people being able to own their own digital identity, assets and data. It’s why he’s founded and leads the EXODUS project at HTC, the world’s first smartphone built for the decentralised internet, or Web 3.0, which he believes can empower and educate users to “wrestle back control” from the world’s largest tech companies.

HTC has run various surveys, Chen says, which found that “100 percent of people” would have opted to block tracking services after seeing the amount of data that companies accumulate on them personally.

Learn some more lingo

Consensus
A process where all participants or peers of the network agree on the validity of the transactions to maintain a distributed ledger.

Cryptocurrency
A representation of a digital asset exchanged on a blockchain system. Also known as tokens.

Ethereum
Ethereum is a decentralised platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.

Initial coin offering (ICO)
A blockchain-based fundraising event in which developers of a new cryptocurrency sell advance tokens in exchange for capital.

Mining
The process of validating and adding transactions to a blockchain. Coins or tokens in exchange for validation works as an incentive for miners.

Smart contract
A computer program that encodes and stores business rules between parties on a blockchain that are enforced by network participants.

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