“A lot of hot air” | An attempt at demystifying blockchain technology

“A lot of hot air” | An attempt at demystifying blockchain technology

I was at a dinner with some friends from school when a friend told a story about his 60-year-old mother buying R10,000 worth of bitcoin earlier this year which is now worth over R80,000 – some of which she cashed out for a very nice holiday.

“This blockchain stuff is a lot of hot air in my opinion…” mused Dave* who felt like he wanted to add something to the topic.

Dave is not alone here. We all know a lot of Daves. So why has no one convinced these Daves that blockchain is potentially the most revolutionary innovation since the snackwich machine formation of the Internet? (See The Blockchain Will Do to the Financial System What the Internet Did to Media or our recent post on IPLive about Artificial Intelligence and Blockchain | How will these impact IP law?)

In a couple of easy steps I think you will be able to get Dave on board and he will possibly even make his first cryptocurrency investment.

Step one: Appeal to his insecurities 

Asked Dave if he likes the idea of trusting:

  • all of his personal information (bank account details, home address, identity number, phone number et al.) to be stored in one place;
  • one entity to have total control of this information; and
  • that the entity will not take advantage of him (i.e. not unilaterally impose tariffs/fees upon him, not unduly profit off him for every transaction).

“Of course not!” Dave will say placing his glass down firmly.

Suggest to Dave that blockchain technology has the ability to appease all of these uncomfortable truths which you have now agreed upon, and that this technology can ruffle the feathers of the Guardians of the Status Quo providing us all with cheap, transparent, fair alternatives to the current financial, regulatory, legal solutions currently in the market.

Dave’s listening but he thinks you sound like a snake-oil salesman.

Step Two: Explain blockchain technology in the simplest terms possible

If you start talking about “mining” and “crypto-coins”, Dave’s going to get that misty look in his eyes again. Don’t do it. Keep it simple.

Your analogy is the idea of there being four of you around the table at a bar and that every time one of you goes up to the bar to buy four beers, the rest of you keep track of who has bought a round of beers and who hasn’t.

If Pete asks Dave to lend him R100 there are two witnesses to the transaction and Pete will struggle to deny that he does not owe Dave R100 in this company at least. But transacting in the real world doesn’t work like this because there are a lot more than four people involved and not everyone trusts each other like good friends do (except for Eric) – which Dave should readily accept.

Explain to Dave that the blockchain has created a protocol that is known as the “trust protocol” that allows complete strangers to transact with each other anywhere in the world with no third party involved (and therefore no fees payable). These transactions are recorded on an encrypted ledger which is distributed across millions of devices across the internet and every ten minutes a “block” of all the transactions that have taken place are stored on the distributed ledger and is untamperable for eternity (each “block” of transactions is recorded consecutively on the ledger which makes up the “chain” of transactions – hence “blockchain”).

Step Three: Make it real – ask Dave to buy you a beer and if you can repay him in bitcoin

There are a number of cryptocurrency exchanges that allow Dave (and you) to buy and sell bitcoin (and other cryptocurrencies). You can tell Dave about a very user-friendly mobile app called Luno which he can download  and set up a profile in less time than it takes the barman to pour your beers. It really won’t take more than two minutes.

Once he is in Luno he needs to open the “receive bitcoin” function and type in the price of the beer which will generate a QR code that you can scan and pay on. All in an instant.

Once the transaction goes through you can tell him the story about the guy that bought two pizzas from his friend for 10,000 bitcoin in 2010. 10,000 bitcoin is now worth over R1billion (yes, one billion rand).

You can now tell Dave that this might just be the best beer he’s ever bought. If he disagrees you can point out that it was his round anyway.

by Nic Rosslee

Note: If you want to learn more about blockchain technology and bitcoin we’ve found this blog post from MIT Media Labs‘ Brian Forde very helpful.