Blockchain Explained: Bitcoin, Smart Contracts, Smarter Contracts

If you have heard about Bitcoin, you’ll most likely have heard about Blockchain technology. In fact, every investor or trader worthy of the name would have heard about Bitcoin and its underlying Blockchain technology. You can’t claim to be an investor/trader and be oblivious to the fact that Bitcoin has delivered more than 500% gain in the year-to-date period. However, the fact that people have heard about Bitcoin doesn’t necessarily mean they understand how the underlying Blockchain technology works.

In fact, someone could have profited from the 500% gains in Bitcoin just because they were comfortable with taking speculative risk without necessarily being an adopter of Bitcoin and Blockchain technology. This piece provides straightforward explainer on how Blockchain works. I’ll also provide insights on the simplified everyday uses of Blockchain technology.

Blockchain explained

Query “What is Blockchain?” on Google and you’ll get at least 31.8 million hits explaining Blockchain technology. The problem however is that the answer to your query is buried in a maze of technical jargon that doesn’t mean much to a guy that wants to beat the returns from the S&P 500 on Wall Street. You’ll begin to see words like ‘decentralized’, ‘distributed’, ‘retroactive’, ‘alteration’ and collusion of the network among others.

In simple terms, Blockchain is technology that you can use to maintain agreements automatically and without the efforts of a central authority. Now, let’s assume that Peter, James, and John pledge $250, $150, and $100 respectively in a common purse for TGIF hangouts. They can have a ledger in which the amount deposited by each individual is recorded, Peter can be in charge of keeping the accounts.

If on Friday the three friends spend $253 on beer, Peter will need to note all the beer purchases so that they can understand who drank what beer when they become sober on Saturday — hopefully, Peter doesn’t get too drunk to make the correct entries. That’s simply how traditional financial institutions work. Banks keep a record of all your transactions in a big fat ledger they keep somewhere.

Two months later, Peter, James, and John can decide to keep three separate ledgers so that they can meet together and update the accounts when they add/remove money in order to keep uniform accounts. Hence, when they go to the bar, they bring out their ledgers and write out every beer order to ensure that they agree on the total expense at the end of the day.

Now, keeping multiple ledgers makes things smooth and easy between 3 people but it would be insane to coordinate such multiple ledgers manually between 1000 or 1,000,000 people.  Blockchain then, is a solution for keeping records of transactions on multiple peers systems so that a change in one ledger is replicated throughout the other ledgers in the network. In essence, any change you make on your account is will show up on other accounts automatically and you don’t need any central authority to be in charge of updating the accounts of peers in the network.

Smart Contracts explained

Smart contracts are another powerful application being built on blockchain technology. Since the Blockchain ledgers are designed to replicate alterations to the any ledger across the whole blockchain, blockchain based contracts provide the perfect solution for creating contracts without fears that a party to the contract will make changes without the knowledge or approval of the other parties.

Taken further, blockchain based contracts can be automated to take some actions based on a satisfaction of some predefined criteria following a set of instruction. Using the “if this, then that logic”, you can create a blockchain-based contract that performs calculations, store information, or send payments/transactions to other accounts based on the satisfaction of a previous event.

However, not everybody understand the full ramifications of the legalese, terms & conditions, and how the legal system might interpret agreements. Hence, lawyers would be sitting tight on the monopoly of helping people create smart contracts on Blockchain. Secondly, very few people actually have the coding skills needed to create smart contracts that can be executed on Blockchain technology.

Thankfully, Confideal is working on creating a solution that makes it easy, fast, and cheap to create Smart Contracts on the Ethereum platform. With Confideal’s platform, you don’t necessarily need to have a background in law or know how to write code before you can create a blockchain-based smart contract for your needs.

With Confideal, individuals, small businesses, and enterprise clients can use blockchain technology to create and enforce contracts that are inherently secure, efficient, and tamper proof. The Confideal ecosystem also has a number of experienced and unbiased arbiters and legal firms that can help resolve disputes right within the confidence platform and without any of the parties to the deal needing to reveal personal information.

The Confideal platform also has a CDL token, which is an internal currency that you can use for facilitating smart contracts and to pay for other services such as voting for arbiters. Confideal ran a successful presale for the CDL token in August, earning about $650,000. Now, Confideal team is preparing for a CDL ICO through which it plans to raise more money for the development of the platform. The Confideal platform is still in infancy, but you can expect blockchain-based Smart Contracts to shoot into limelight because of their inherent ability to remove the borders on business and trade worldwide.

Bitcoin explained

Bitcoin is a kind financial agreement built on Blockchain technology. Everybody lists the amount of Bitcoin they have and an increase/decrease in your personal stash of Bitcoin is recorded all over the distributed ledger. If you have 5 Bitcoin and decide send 1.5 Bitcoin to your friend, the ledger will record a 1.5Bitcoin subtraction from your wallet and increase the amount of Bitcoin your friend’s wallet by 1.5 Bitcoin.

Other salient factors in how Bitcoin works is that the transactions need to be confirmed by other people before they are actually recorded. Anyone can be a part of the important job of keeping the distributed ledgers. Making additions, reductions, or general changes to the ledgers is subject to previously agreed rules. Any valid change made on a ledger is replicated globally across the Bitcoin blockchain.

Now, the fundamental amount of Bitcoin that people own have no value in themselves, but the value of Bitcoin because of the fundamentals of demand and supply. Gold has no value on its own, other than the fact that a great deal of demand for gold suggests that it is valuable. The papers on which fiat currencies are printed have no value on their own, but the fact that governments fuel demand by making it a legal tender projects value on them. Critics can argue that Bitcoin are created out of thin air, but the fact that people project value on the cryptocurrency as an alternative to fiat currencies is value in itself.