Blockchain is a new kind of database - block or records connected to another block. That's the simplest explanation.
Its an
oversimplified explanation. The blockchain forms a Merkle chain of unalterable history, whereby correct knowledge of the present can be used to verify correct knowledge of the past. Adding a Hashcash-style POW function for transaction ordering, it becomes a Byzantine fault-tolerant distributed database with no central authority or trusted supernodes.
Thats the simplest explanation I can provide in two sentences.
Thank you for this post. It's always mildly infuriating how people focus on the boring part of blockchains -- ie. the database aspect -- while completely ignoring the interesting part -- ie. achieving consensus.
Now one may argue about the up and downsides of PoW, but one thing should be clear to everybody -- a blockchain without a decentralized, permissionless, trustless way to reach consensus is only half the fun.
:)1. There is no customer protection on the blockchain.
=> Blockchain technology operates as a push-based settlement system. This means the individual holds power over the resource they want to verify on the blockchain. This could be cryptocurrency, certificate authentication, land titles, etc. The problem with this is if a transaction goes sour after it has already been verified on the blockchain, the only feasible way of returning the transaction is if the parties agree to reverse it. Using a centralized system like a bank. However, there is a procedure in place to be able to dispute trades after they are complete.
Some trade technologies that settle on a blockchain have used an arbiter system to fix this problem, an example of this is the Open Bazaar P2P trade network. This way a trade occurs between two people, and one impartial moderator.
Customer protection is a legislative responsibility, not a technological one. If you use cash or Bitcoin to pay a law-abiding merchant they will still honor your rights as a customer. If you wire transfer money to a nigerian prince customer protection will do shit for you.
:)2. Settlement on a blockchain is slow.
=> A cost of settling a transaction on the blockchain is that all the nodes in the network need to come to an agreement that the transaction is valid. This is a far slower process than having a bank verify your transaction in an instant.
Transactions can be made instantaneously, however until the block in which the transaction is inserted in has been verified, it is classified is untrustworthy. In the time between a lodged transaction is made and when the block settles, a bad actor could launch fraudulent transactions to trick the network into what is known as a double-spend.
A very exciting upcoming technology that could solve this problem is the lightning network. This solution acts as a layer 2 of blockchain technology; it can be applied to any public blockchain. It will enable instantly verified transactions for a fraction of the cost of todays settlement.
Traditional payment methods may seem instant, but behind the curtain
settlement is way slower than Bitcoin's or that of other cryptocurrencies'.
Wire transfer / SEPA transactions can take 1-2 days to settle. Direct debit can take up to 14 days to settle. Credit cards / PayPal can take even longer.
:)3. Miners can be selfish
=> The mining process on the blockchain is an innovation which uses game theory economics to incentivise people to commit computer power for securing the network for a profit. The down-side of this is generally miners wont care about settling as many transactions as possible; they will make the most money by finding and verifying a block in the fastest way possible.
This leads to a problem of miners finding empty blocks and validating. There is also another problem known as Selfish Mining, which is a situation where a miner or mining pool finds and validates a block and does not publish and distribute a valid solution to the rest of the network.
Selfish mining is a potential attack on the network but an uneconomical one at that. Unlike mining empty blocks, it has nothing to do with mining incentives being misaligned.