GNOSIS provides an open platform for businesses to create their own prediction market applications on the Ethereum protocol, and they spent the last few months right here at betahaus. For Part 1 of this series, we sat down with Nadja, the Brand & Content Strategist for GNOSIS, to address some frequently asked questions in blockchain: what is blockchain, what are its advantages, and what does it mean to depend on third-parties?
Here's what she had to share!
"I like to describe blockchain as being something like a 'spreadsheet in the sky'. It's a shared, trusted, public ledger of transactions — a distributed database that maintains a continuously growing list of transaction data records, cryptographically secured from tampering and revision. This ledger runs on a peer-to-peer network of computers that all run the blockchain protocol and hold an identical copy of the ledger of transactions. Distributed consensus based on economic incentive mechanisms (game theory) combined with cryptography allows for secure peer-to-peer validation of transactions, and hence bypassing the need for traditional trusted third parties (like banks).
Imagine Google Docs. Each person has the latest version of the document, and everybody can inspect it. In order to change the contents of the doc, users need to reach a mutual agreement (consensus). As opposed to Google Docs, the file is not centrally stored, but each node of the network keeps a copy of the blockchain — the distributed ledger recording all transaction history."
"The main advantage of blockchain is that users no longer have to trust a third party to validate transactions. With blockchain, a peer-to-peer network of computers validate transactions by majority vote (consensus). Everyone can inspect this public ledger of transactions, but no single user controls it. Blockchain, hence, provides an architecture for so called 'trustless trust' — it allows us to trust the outputs of the system without trusting any actor within it.
Imagine Anna is your best friend. She's traveling overseas and on the 3rd day of her vacation, she calls you and says: 'Girl, I need some money. I'm totally broke.' You, being a good friend and generally nice person, reply: 'I'll send some right away,' and hang up. You then call your account manager at your bank and tell him (of course you'd use N26 to do this, but let's look at the conservative way for illustration purposes): 'Please transfer 500€ from my account to Anna's account.' He opens up the register, checks your account balance to see if you have enough money to transfer 500€ to Anna. Because you have a lot of money, he makes an entry in the register like the following: Taylor sends Anna 500€ on February 8th, 2018. So, what just happened? You and Anna both trusted the bank to manage your money. There was no real movement of physical bills to transfer it. All that was needed was an entry in the register. Or more precisely, an entry in the register that neither you nor Anna controls or owns. And that is the problem with our current system: to establish trust between ourselves, we rely on individual third-parties."
"The problem is that if anything bad happens in society, all it requires is one person or organization to go corrupt, intentionally or unintentionally. What if that register in which the transaction was logged gets destroyed? What if, by mistake, your account manager had written 1000€ instead of 500€? What if he did that even on purpose? All this leads you to the question whether there's a way to maintain the register among ourselves instead of someone else doing it for us. You may have guessed it — blockchain is the answer. It is a method to maintain that register among ourselves instead of depending on someone else to do it for us."