FAZLI SAMEER
COLOMBO : Ahmed is your son. He is traveling overseas looking for employment, and on the fifth day after he left, he calls you and says, “Dad, I need some money. I am running out of it.”
You reply, “Sending some right away, son” and hang up.
You then call the account manager at your bank and tell him, “Please transfer Rs 1,000/- from my account to Ahmed.”
Account Manager: “Yes, sir.”
He opens up the register, checks your account balance to see if you have enough balance to transfer Rs 1,000/- to Ahmed.
You call Ahmed: “I’ve transferred the money.”
Ahmed: “Thanks Dad, I love you”
What just happened? You and Ahmed trusted the bank to manage your money. There was no real movement of physical bills to transfer the money. All that was needed was an entry in the banks register that neither you nor Ahmed controls or owns.
And that is the problem of the current system.
To establish trust between ourselves, we depend on individual third-parties.
For years, we’ve depended on these middlemen (banks, in this case) to trust each other. But then, you may ask, “what is the problem in depending on them?”
The problem is that they are singular in number. If achaos has to be injected into a society, all it requires is one person/organization to go corrupt, intentionally or unintentionally.
· What if that register in which the transaction was logged gets burnt in a fire?
· What if, in error, the account manager had written 1,500 instead of 1,000?
· What if he did that on purpose?
· What if the bank goes into liquidation?
· What is it is the weekend and the bank will not open till Monday?
Could there be a system where we can still transfer money without needing the bank?
The Blockchain!
It is a method to maintain that register among a group instead of depending on someone else to do it for us.
The requirement of this method is that there must be at least three or more people who would prefer not to depend on a third-party (bank). Only then will this group be able to maintain this register on their own. Let us assume ten people, A, B, C, D, E, F, G, H, I, & J.
1. An Empty Folder
Each has an empty folder to start with. As we progress, all ten will keep adding pages to their empty folder. This collection of pages forms the register for all the transactions.
2. The Transaction
Everyone in the network writes the transaction.
B wants to send Rs 1,000/- to J.
B tells everyone, “I want to transfer Rs 1,000/- to J.
All check whether B has enough balance to transfer Rs 1,000/-. If so, then, everyone makes a note of the transaction on their page.
This is the First transaction to be completed in the Page of the Group.
3. More Transactions
This exercise continues until everyone runs out of space on the current page.
Assuming a page has space to record ten transactions, as soon as the tenth transaction is made, everybody runs out of space.
The page gets filled.
It’s time to put the page away in the folder and bring out a new blank page.
4. Sealing the Page
Before we put the page away, we need to seal it with a unique key that everyone in the network agrees upon. By this we make sure that no one can make any changes to it once it has been put away forever. Once in the folder, it will always stay in the folder — sealed.
5. The Hash Function
Suppose, we input a number 4 inside a box from the left and assume that we get the word ‘dcbea’ coming out from the right. This is the hash number.
The hash number is called ‘Proof Of Work,’ meaning that this number is the proof that efforts had been made to calculate it.
We use this hash mechanism to seal all our pages and eventually arrange them in our respective folders.
Whatever hash number the majority agrees upon, becomes the honest sealing number.
And once everyone tucks away the page in their folders, they bring out a new blank page and repeat the whole process, doing it forever.Think of a single page as a Block of transactions and the folder as the Chain of pages (Blocks), therefore, turning it into a Blockchain.
