A Simple Example of the Power of an Open Blockchain

A Simple Example of the Power of an Open Blockchain

Real World Uses?

If you’re familiar with Blockchain, or you’ve read our summary, you know that one of it’s features is a verifiable and permanent record of transactions, stored in a distributed ledger.

Other than the joy of crazy new technology, what value does that really have?

Let’s take a look at a real world example using a cryptocurrency called Ether. Ether is the second biggest cryptocurrency after Bitcoin. Ether’s underlying Blockchain is called Ethereum. Like any system with a public Blockchain, the entire transaction history of Ether is publicly viewable using a tool called a Blockchain Explorer. Take a look at Etherchain to see this in action.

But what does a verifiable and permanent record of transactions really mean? And why is it useful?

Go Grab Your Wallet

Before we can answer that, there’s some terminology to explain: the idea of a wallet. A cryptocurrency wallet is a lot like a real world wallet – it’s where you keep your money. But there’s a wrinkle. Every cryptocurrency wallet has a unique address. A wallet address is a long string of letters and numbers, like this:


This wallet address is one I selected randomly for the purposes of this post.  Once you have a wallet address, you can search the Blockchain to see all of the transactions that are associated with that wallet.

Click this link to see this for yourself. You should see something like this:

A view of the wallet data available in a Blockchain explorer

What is That?

This is an example of the history of one wallet. This information is publicly available for every wallet on the Ethereum Blockchain.

You can clearly see that this wallet contains $4.24 of Ether (based on the current price at the time this screen grab was taken). You can also see the time and amount of the last three transactions, and the wallet addresses that money was sent to.

As you might have guessed, you can explore every wallet that has ever had a transaction on the Ethereum Blockchain, all the way back to the beginning. And those records can neither be altered or deleted.

So What?

This might all seem a bit creepy. We can peek into anyone’s wallet without them knowing. We can see which other wallets they’ve had dealings with. We know exactly what was sent when.

However, we have no idea who owns this wallet. We have no idea who owns the wallets that money was sent to. All we know is that those transactions happened.

So what? It’s a good question.

The Mysterious Buyer

Let’s imagine you are selling something expensive. You want to know if a potential buyer is serious, or just wasting your time. A good first question would be: do they have the money?

When you sell your house, you usually look for a pre-approval letter from a mortgage company, indicating that the buyer can get a mortgage up to a certain limit. In the world of Blockchain, all they would need to so is send you their wallet address. As soon as you get the address, you can check what the wallet is worth.

Perhaps you’re thinking that someone could just go looking for a wallet that has enough money in it, and send you that address. And you’d be right. They could. But there’s a very easy fix. Just ask them to send a tiny payment to your wallet. The amount doesn’t matter. They cannot send money from a wallet they don’t control.

Maybe they’re a bad operator, and they borrowed the money with no intention of spending it. Guess what? If they transfer the money back out of their wallet, you can see it on the public Blockchain.

In other words, you can verify they have the money without needing to trust them. You don’t even need to know who they are.

But Wait, There’s More

So that’s pretty cool. But there’s more!

Ether is capable of another clever trick: the smart contract. A smart contract is software that is built into the money itself, and it can control how and when transactions happen. In our example, if the buyer was paying in cash, we might set up a simple escrow account. The simplest form of escrow account might have just two simple rules:

  1. The buyer deposits their money.
  2. The seller only receives the money when the buyer gets the item they purchased.

These rules can be built into a smart contract and executed automatically.

In other words, we just eliminated a bunch of third parties and a ton of expense. We don’t need a bank wire, nor do we need an attorney to broker the deal. The whole thing happens automatically.

Still wondering if there’s a real world use for all of this? Here’s an example. The Government of Ukraine recently announced that they would digitally auction seized assets using the Blockchain. This ensures transparency and largely prevents corruption. Every item is accounted for in a public, unalterable record.

Welcome to the new world of Blockchain where even politicians can be forced to be honest!

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