Take one, pay one, make two from that? No way…

In my last post I wrote something about crypto currencies and blockchain, but only hinted at what blockchains can be used for and what the fundamental innovations of blockchain technology are. For me, it’s the fact that the double-spend problem is finally solved – transparently and without having to trust a central authority.

But what does that mean in detail? The easiest way to explain double spending is as follows: If you buy a book in the real analogue world [1], you pay for a book once and get a book once [2]. And only you own the book physically. If your neighbours want to read it too because you raved on about how great the book is… Well, then you have to “lend” it, i.e. give it away – then your neighbour will have it. Thus there’s only one “instance” of the book, unless you copy it yourself and then distribute it (but let’s forget that now before we do overdo it šŸ˜Š).

My rights – your rights

In the digital world this is different. If you buy an e-book online once, then you get a file once. This file can be copied as often as you like (which takes us to copyright etc.). This goes for analogue books too, but to copy a book in an analogue way you have to make quite an effort. This is much easier digitally: 4 clicks or 2 key combinations on and you have already “created” a second book. This is exactly what is behind the term “Double-Spend”. The online retailer would not be amused if he gave you the book several times so that you can resell it on Ebay.

Until the “invention” of the blockchain this was a huge problem for digital goods, so countless copy protection mechanisms were invented (DRM is only one of those ā€œsolutionsā€). So quite logically they tried to prevent copying – that’s just the problem, isn’t it?

“Single Spend” with Blockchain

A blockchain solves this in a different way: it can actually represent ownership relationships. That’s why crypto currencies were the first big application of blockchains: money and double spend don’t get along. How about giving digital money a unique number and then assigning this number to another unique number (e.g. my user ID)? This will be encrypted and stored decentrally on a lot of computers, so EVERYONE can check with suitable software whether this digital coin really does belong to me. To copy the coin is mathematically extremely complex and not proportionate, but I don’t want to explain the underlying principle of the hash function in detail here, others can do that as well.

… Better safe than sorry

The crucial factor of blockchains in this context is distributed storage and processing (called consensus building in technical jargon, cf. also Byzantine fault tolerance). Let me give you an example: land registry is a typical centralized application – if it says in the land register that a property belongs to me, then that is the case. Thus I have to trust the office to make sure that nobody “tinkers” with the book. Changes of state to it are only made by a notary or registrar – already the second authority that you can trust now. What if EVERYONE had a forgery-proof image of this land register? And entries in this digital book are made only if all others agree with a copy that the change is right? In an analogue world this is unimaginable, but digitally feasible without fuss: with the blockchain.

So that was my attempt to write in a few hundred words about the idea behind blockchain technology. What remains now is the main problem of the hype right now. We have a great solution, but what problems will it actually solve? Next time I’ll present a selection of problems and solutions for the blockchain, until then…

1] For younger readers amongst us: there once was a thing called it a city centre. In it there were buildings open to the public with lots of books made of paper and stuff. And you were allowed to take them with you, so you could buy them. Without DHL and Amazon and One-Click, just go in, touch, buy…

2] Please don’t come to me now with special discounts and other marketing stuff…

Text: MHA
English translation: BCO

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