Blockchain is an enabling technology that is changing the way we think about and implement business applications, but to understand it we need to reiterate the three components that make it possible:
The Software is a set of three components: a write-only database, a networking system that connects multiple computers together (Peer-to-Peer), and a consensus mechanism that allows you to decide which transactions can be written and which cannot.
Cryptoeconomics is the combination of Token + Game Theory. The latter has nothing to do with gaming but is the study of mathematical models of conflict and cooperation between intelligent rational decision makers. Made famous by the movie “A Beautiful Mind” about the life of Nobel Prize-winning economist John Nash, it is linked to the Blockchain in the solution to the famous problem of Byzantine Generals lying about the coordination of their attack to ensure victory for their opponent. The implementation of a “Byzantine Fault Tolerance” (BFT) is important because it assumes that no one can be trusted. Cryptocurrency through Token is what makes a Blockchain secure, not the technology. Through a process called Mechanism Design, cryptoeconomic incentives can be created that push people to behave in the right way. On the Blockchain, it costs less to be honest than to be dishonest. A validating node receives tokens if it validates transactions and loses tokens if it goes absent.
Cryptography is used in various parts to provide security to a Blockchain network and is based on three basic concepts: hashing, keys, and digital signatures. A “hash” is a unique fingerprint that helps verify that a certain piece of information has not been altered, without the need to actually see it. Keys are used pair one public and one private. As an analogy, imagine a door that needs two keys to be opened. In this case, the public key is used by the sender to encrypt information that can only be decrypted by the owner of the private key. You never reveal the private key to anyone. A digital signature is a mathematical calculation that is used to prove the authenticity of a (digital) message or document. Cryptography is based on the concept of public/private key. Public visibility, but private control. It’s kind of like your business address: you can post a company website, but that doesn’t give any information about how your production processes take place. You’ll need your private key to get into the company, and because you’ve declared that address as yours, no one else can claim a similar address. Although the concepts of cryptography have been around for a while, on the Blockchain they are combined with the innovation of Game Theory, where uncertainty is limited by mathematical certainty. You can mathematically prove that something has been done without necessarily having to show it to others. Very cool.