Blockchain basics: how buying a used car helped us understand blockchain
Blockchain and cryptocurrencies have become hot topics on our newsfeeds over the past few years. We’ve heard these terms increasingly make their way into conversation at work and social events too.
It can feel like it’s hard to keep up with all the terminology as new technologies are developed so rapidly.
But hopefully by the end of this article you can tick “blockchain basics” off from the list of things you pretend to understand but don’t really. More importantly, we’ll be explaining why it matters as well as how we managed to make sense of it.
So, first things first, what is so special about blockchain?
Blockchain is usually described as a distributed ledger, a collection of records shared by a network of people or entities.
The collection of records is ordered chronologically and with each new record the previous one becomes frozen in time and cannot be altered. This is the key selling point of blockchain as it enables a history of transactions to be preserved without anyone being able to change it.
What’s the difference between blockchain and a cryptocurrency?
Cryptocurrencies, such as Bitcoin, are often confused with blockchain but it is important to distinguish between the two. Bitcoin is a digital currency which can be transferred over a network. Blockchain is the ledger on which Bitcoin transactions are recorded.
Blockchain’s uses are not limited to cryptocurrencies. It has applications elsewhere. In fact, any scenario where you need to keep a record of asset ownership – be this cash, Bitcoin, shares or property – could be a use case for blockchain.
How buying a used car helped me understand blockchain
Let’s take a tangible scenario which you may relate to – buying a used car.
Where do you start when looking to buy a used car? You might visit a dealership, buy from an auction, buy online or buy privately. Whatever method you choose, there will be some kind of agreement between you and the seller, and you’ll want to check various things including its history.
But how can you guarantee the information is correct?
This is where blockchain comes in. Blockchain could host an immutable chain of records that detail the car’s history, including all vehicle inspections and repairs which could be validated by each garage. This would be a trusted source for the conditions of sale of the used car and will be a valuable tool if you decide to sell the car again in future.
There are already websites that offer vehicle history reports but you have to pay a fee to access them as they are run by a third party. With blockchain there would be an agreed ledger that is verified by the garages that complete the inspections and repairs and cannot be disputed by the seller or buyer. The ledger could also record independent valuations, which would make negotiating a price a little easier.
This is a relatively simple example to demonstrate the benefits of using blockchain to record transactions with just three players – the buyer, the seller and the garage. Now imagine this is a different transaction with more than three players – a complex asset exchange if you will. Using blockchain at scale allows transactions to be much more cost and time efficient from a data sharing perspective. All parties have the same view of immutable transactions that are universally agreed as the truth.
In a time of great technological innovation, we will continue to see blockchain to be incredibly relevant in the news and mentioned at various work and social gatherings. So maybe now you can add some knowledge to these conversations yourself.
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