Introduction to BlockChain and Smart Contracts – Layman’s Language

Surely! You are here because you have heard about Blockchain or you must have been working in blockchain but want to learn about the security of blockchain. Or maybe!! It may have “blocked” you somehow in your work, life, career growth, or most probably trading and investment. This post is an introduction to blockchain and smart contracts in layman’s language.

If you are here from a trading and investment point of view, this guide does not cover this subject at the moment. But after reading this post you will be able to answer next time when someone asks you about Blockchains. 

So let’s get started and break down different blockchain components and concepts from a real-life example.

Centralization vs Decentralization

To understand what decentralization is, let’s look into the farmer and consumer example:

All farmers of the village get their products at the collection point set by the Government or authority, all the products are mainly sold by the authority on behalf of farmers. Prices and rates of each product are decided and finalized by the central controlling authority. 

Things to consider:

1. No Transparency: Farmers cannot see what rate was given to other farmers as is solely managed by the authority. Consumers cannot know what actual price the product was sold at by the farmer. 
2. Integrity: There is no integrity check as the rate decided by the authority is partially or in some cases completely independent of the prices paid to farmers. So, validation is almost not possible, about what the actual rate or price of the product should be. 
3. Not Open: Authority controls which farmers to buy the product from and what markets to sell the products in. 

While in a decentralized environment:

Each farmer and end user are directly connected and payments are made directly using any channel. In other words:

1. Transparency: End Users can see the prices listed by all farmers as each farmer has the right to set the rate for his products. 
2. Control: Each farmer is in control of the quantity, rates, and quality of the products. 
3. Public: Data is public.
4. Open: Any farmer and end-user can use the platform for selling and buying respectively.
5. Distributed Record Keeping: The transaction history is not managed by a single authority but is distributed across all farmers/villagers. Each participant has a record of all transactions, improving transparency and reducing the risk of modification and manipulation.

Ledger:

Take this as a register that records all the transactions which cannot be modified or deleted once recorded and anyone can see the history of the transactions. 

Let’s say a record or file of an automobile vehicle that contains the history of owners who purchased the same vehicle up till now. Anyone buying that used vehicle can see the history of the owners and their details which cannot be modified or deleted. 

Transaction:

Each transaction, be it a financial transaction or a record from a vehicle sale purchase history will be called a transaction.

Smart Contracts:

Smart Contracts are made to perform transactions when a set of required conditions are met, which are necessary to perform a transaction.

Let’s say a set of rules which all villagers agreed upon, you can call it “Rules of Trade”. These rules are implemented automatically for each transaction execution when a set of conditions are met. Hence eliminating the need for a middleman who oversees each exchange. 

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