Explain Blockchain Like I'm 5 (using Examples)

Explain Blockchain Like I'm 5 (using Examples)

Explaining why Blockchain technology is the most important technology since the Internet and how it can help fight corruption, introduces a new and transparent way of doing business, converts every user of a product into a shareholder, helps fight censorship, provides decentralized governance, and eliminates distrust in institutions.

What do most of us know about the Blockchain? I'm not talking about software engineers who are well educated on the topic but talking about everyone else... Most people haven't heard about it at all, and others would tell you that it's an engine for cryptocurrencies, and crypto is a great asset to make a ton of money in a short period of time. While some of it is true, there is so much more about the Blockchain, but most people have no any idea about all the possibilities it opens.

One of the most critical cornerstones for the Web 3.0 industry is a mass adoption by everyday users. But how can regular users adopt something they don't understand? The goal of this article is to present to non-technical people how many opportunities the Blockchain provides.

If you try to Google why Blockchain is so important inventment, you will find a basic explanation that Blockchain-based solutions are decentralized, trustless, open-source. They reward their maintainers. They are cheaper and faster than centralized solutions. But what the heck does it even mean? For a non-technical person, all those catchwords don't mean anything! I'm going to use two examples of real-world problems which can be solved with the help of the Blockchain. And using those examples, I'm going to explain what actually software geeks mean when they use those catchwords.

Affordable Housing. The first problem is an affordable housing problem. Huge budgets from taxpayers' money are invested in solving the problem every year. However, the problem becomes worse and worse. What do we do wrong? And how can Blockchain help to solve it?

Twitter and censorship. The second example is the controversy surrounding Twitter for the last couple of years and is related to censorship.

Let's use those examples to explain what the words like "trustless," "decentralized," "incorruptible," "open-source," "profit sharing," and others actually mean.

1. Blockchain is an incorruptible and trustless infrastructure.

If you are old enough to remember, when social media only became popular, people shared their own (or their friends!) embarrassing photos and videos on social media. It took some time for us to realize - what is shared on the internet stays on the internet. As soon as you uploaded the photo, many other users had a chance to download it and save it on their own machines. And it's impossible to get rid of it already.

Blockchain is similar to the internet in that sense: instead of having one centralized server that stores all the data, every member of the network keeps a copy of the data. If we share the photo on the Blockchain, millions of network users automatically download its copy without even knowing it. If you then decide to remove the photo, you will have to get approval from every network participant. And that is literally impossible. There is no way to remove the data without others approving it. Try to corrupt the data and change it on your own machine and, let's say, on hundreds of other machines. There will still be thousands of Blockchain members who will be able to tell that the data is corrupted, and all your modifications will be reverted. All of that is done with the help of algorithms, and real users don't have to do anything to make it work.

OK, so there is no way to modify, remove, add and corrupt the data without others knowing it... Why would I care? Let's use our example with the affordable housing problem to answer this question.

So much money involved, and the homelessness problem only's getting worse. How is that possible? Are the implemented processes and methodologies so ineffective and can be improved? Or is it some form of corruption where the biggest piece of the pie goes into the pockets of the people who are fixing the problem, instead of people who need help? If that's the case, then the people rewarded for "fixing the issue" have their own financial interest in never actually fixing it! While the problem exists, there is always payday for those who are fixing it.

Transparency. Now let's imagine if we could put most of the financial operations related to all the organizations and institutions involved in some sort of transparent database where anyone can review the data in that database. Track all the spending from the taxpayer's pocket and to the actual cause. The brightest minds in the world would be able to see and analyze all the processes and operations and advise how the processes can be improved. Is it possible to use cheaper materials? Are there any unnecessary and expensive intermediaries we can get rid of and spend the money on the actual cause?

Honestly, we don't need to use Blockchain to make the financial operations transparent. Theoretically, the same organizations and institutions can share their databases with everyone. But if we assume that there can be corruption in the system, how can we trust that the same organizations and institutions haven't modified their databases to hide any shady activity? Eventually, they have full control of the data! And that's where the Blockchain comes into play: if we put the data in the decentralized Blockchain-based database, the data will be incorruptible. The data will be controlled by thousands and even millions of users worldwide. Obviously, it's a little simplistic and over-optimistic view - not every data can be shared publicly. But so much of the information that we're dealing with daily can! And it's the first step in the right direction. I'll probably need another article to describe other measures that have to be implemented to preserve privacy for some sensitive data, but I assume you got a general idea.

Trustless Infrastructure. What happens on the Blockchain stays on the blockchains. There is no way to hide any nefarious activity, no way to corrupt the data. There is no need to trust some entity that controls the data because there is no such single entity. Millions of users control the same data. And that is what people mean when they say trustless infrastructure. You don't have to trust somebody. You just know that corruption is impossible.

2. Decentralized governance

It's difficult to find a person who hasn't heard the drama surrounding Twitter and its censorship rules. Some people argue that the current censorship measures are the correct solution. Others say that we need another solution and current censorship rules restrict our freedom of speech. Wouldn't it be great if we could simply vote on the censorship issue instead of trusting that a small group of board directors and shareholders will make the best decision for a Twitter community? If 50% of the community believes that some post has to be removed, but the other 50% still think we need to keep the post, I'd argue that it's not even close to a unanimous decision, and the post has the right to stay on the network. But what if 70% want to censor it? Is 30% audience small enough to lose their ability to participate in the dialog? What about 80/20 ratios? 95/5? Different people will give different answers to that question.

The Blockchain allows to vote on the issues. Developers usually leave many different points in the algorithms that people can vote on in the future. So the community can govern the network themselves and experiment with multiple options: the network may vote for a 70/30 ratio on the censorship issue, but later decide that it was a wrong decision and go for 90/10. And as our society and culture evolve over time, we may even decide that our previous decisions are not correct anymore and may vote on the same issues again. The community that uses the network decides how the network should operate.

3. Open-source

So this one is controversial. And many business owners hate the idea of a blockchain and web 3.0 when they hear that quite often it's all open source. But I would argue that the whole concept of Web 3.0 implies that the products have to be open-source. And there are multiple reasons for that.

3.1 Can you trust the algorithm?

First, as I mentioned before, the Blockchain runs on algorithms, and we don't have to trust any single entity because we trust the algorithm. But how can we trust the algorithm if it's not open source? And we can't. The world's brightest minds also should be able to review the algorithms and propose their improvements. And anybody should be confident that the code being executed is not corrupted too. Otherwise, how can you trust the voting algorithm of Twitter if its source code is not available for review?

Obviously, many business owners don't want to share the code they spent many years and a lot of money on. But there is also still a hungry young generation of entrepreneurs who see it as an opportunity to enter the market. People support open-source products. Can you imagine if Twitter's algorithm was available to everyone? We would have had a competitor a long time ago because it would be pretty easy to copy Twitter's functionality.

3.2 Incentive to do a good thing.

And contrary to the beliefs of many business owners, if you have a great product and you actually care about your community and not only about your bottom line - people are not going to leave. So many people hate Twitter nowadays, but not so many are ready to leave even with all its censorship controversies. If Twitter actually cared and listened to its own community, it would be even harder to leave the network. And if you still have your doubts about it - just look at the cryptocurrencies world. Most of the cryptos are open-source. They can be copied in a matter of a week. But that's not what is happening. Because why would you leave the community that actually cares about your interests to join some new community that you know nothing about? It would only make sense if the original product is completely out of touch with its own community, and it doesn't even make sense to try to fix it.

This type of mentality is new but very prominent among Web 3.0 enthusiasts. If you take care of your community - the community will take care of you. And as soon as you decide to implement some shady schemes in your daily operations, your product's clone will be created and outcompete you in a free market. This incentivizes good behavior and eliminates the possibility of corruption.

4. Profits redistribution

Every organization needs maintainers. Banks have bankers, managers, and janitors. Cryptocurrencies have miners, stakers, pool operators, and developers.

But how are all those people paid? There definitely should be an incentive to maintain the network. Otherwise, sooner or later, people are going to leave! We know how banks pay to their employees. But how maintainers of the blockchain network are being rewarded?

Users are shareholders. There are multiple different ways to reward maintainers. Some portion of the reward comes from the inflationary rate of cryptocurrency. Sometimes reward is a fee that the network charges its users. Similar to the bank that charges its users for some operations, Blockchain charges its users. But contrary to the bank, all the operation profits go to its maintainers and developers instead of bank shareholders. In a way, people who actually maintain and develop the network become network's shareholders. And if the network has some profits by the end of its pay period, all the profits go to the same maintainers.

Music apps reward their artists and listeners, streaming apps reward their content creators and subscribers, and social media apps reward their content creators.

5. Cheaper and faster

Because we eliminate shareholders and unnecessary intermediaries and replace them with simple algorithms, the overall cost of operations becomes cheaper. It becomes especially evident if we compare international wire transfers and transfers using cryptocurrencies. When we use crypto, we send money directly from sender to receiver, avoiding intermediary entities like banks that charge their fees. We still need somebody to validate the transaction for security purposes, so we still have to pay a fee to the maintainers of the network. But because we pay fees directly to a person who does the job and because we don't have to support the whole establishment like banks, the fees are significantly lower. For all the same reasons (no intermediaries and automation), transactions can be delivered in a couple of minutes. At the time of writing, an international transaction on the Cardano network costs around 0.15$, and it takes approximately 10 minutes to validate and deliver the transfer. The same transfer via one of the major banks would cost 30-65$ and take 2-5 business days to deliver.


So what do we have as a result? In a day and age when society's trust in the establishment is at its record low, we have an opportunity to build products that don't have to earn your trust. Anybody can review the source code. If the company decides to put its interests above the interests of the community, competitors can be created in a couple of weeks. There is no way to corrupt the data, and the data is pretty often available to the general public. And finally, every important decision can be voted for by the community members. Rewards are redistributed among the members of the community who maintain the network. And the overall cost of the network is significantly cheaper than its centralized analogs. And that is what tech gurus usually mean when they say that Blockchain-based solutions are decentralized, trustless, open-source, reward their maintainers, and are cheaper and faster than centralized solutions.

Now, does it mean that every solution needs to become decentralized and be based on the Blockchain? No! There are also multiple disadvantages that come with the Blockchain. But we will need another article to talk about them...

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Explain Blockchain Like I'm 5 (using Examples)

About the Author

Hey Everyone! Thanks for checking out! My name is Dima Bezzubenkov, and I'm answering different questions related to the software development industry. Subscribe to my video channel, connect with me on social media, and visit my website!

Dima Bezzubenkov