SPONSORED CONTENT* At Ads24’s recent Food for Thought event, renowned economist Dawie Roodt predicted that the technologies behind blockchain and cryptocurrency are about to significantly change the way we see money and banking.
Instead of being intimidated by the idea, we should embrace it and understand how they work. Here are 10 points from Dawie’s presentation to understanding blockchain and bitcoin:
- The first rule to understanding blockchain is don’t think out of the box, throw the box away completely. The concept is simple, don’t over complicate it.
- The initial requirement to starting a blockchain is to think of it as having a group of people to make up a network.
- Secondly, everybody in that network has to agree that from now on there are no more secrets. Everybody knows everything about the network. “For example, this is my cellphone,” said Roodt. “So now we all know that the information ownership is that Dawie is the owner of this cellphone.” The important thing here is the ‘information ownership’ and that all members of the blockchain share this information.
- A transaction takes place when Dawie takes the cellphone and gives it to someone else. So the “information ownership” changes from Dawie to the person in the network who receives the cellphone. “If I now try and take his cellphone and give it to someone else, the network making up the blockchain won’t allow it because the information ownership no longer belongs to Dawie. Because everyone on the block-chain is sharing ALL the information and because no single person is in charge, the system is stable. Also, because we are all sharing this information we can all trust this information to check everybody else. The only way to hack a blockchain, therefore, is to somehow take control of more than half of the network.
- The essence of the blockchain is information flowing on a network, it’s that simple.
- Now that we understand the concept we can add a few more ideas. Firstly, it’s not actually people making up the network, but computers, and you can’t actually see who is sitting behind a computer. There’s no faces only numbers. So what you have is a network where information flows, where everybody protects everybody else. It’s stable and you can trust this information, but you can’t necessarily see who is behind the computer and in many instances the information is encrypted.
- Now we add the concept of money. In essence money is anything that is accepted as money. In the past it was beads or shells. More recently we took metal and melted it down into coins. Later we began using notes. These days money is usually in the forms of 000s and 111s on computers. When you transfer money from your bank account to someone else’s it’s just information, so if you make a transfer on your computer onto someone else’s there’s no person running with a briefcase of money between banks. It’s simply a transfer of information.
- Now, let’s assume that this network decides to make money. Let’s call it a credit, because anything accepted as money is money. And we all agree that tomorrow morning when we look at our apps on our phones we will all have one credit. “I can take my credit and make a transfer from my app to [another person’s] app with everybody on the network witnessing it. Now I have no credit and [the other person has] two credits.”
- It’s that simple, flowing on a networks about something that is generally accepted as money. Any network can decide to come together and make their own money.
*Ads24 paid for this article
Want to continue this conversation on The Media Online platforms? Comment on Twitter @MediaTMO or on our Facebook page. Send us your suggestions, comments, contributions or tip-offs via e-mail to email@example.com.