The word blockchain is on everyone’s lips in the world of finance and computers. But nobody really knows what that is.

Blockchain technology is a topic of conversation that transcends industrial boundaries. But for many of us the term still remains unwieldy and incomprehensible. There are many definitions, articles and explanatory videos – but often these are just a series of buzzwords. Explaining a foreign word with other foreign words usually doesn’t really help. Therefore, we will try to approach this term in an easy and understandable way.

So what’s a blockchain?

In abstract terms, a block chain is a special database that can manage transaction data with complete transparency, without a central control instance and without the need for mutual trust. Techs expert Jamie Skella has simplified this explanation in his article on Linkedin “A blockchain explanation your parents could understand”. He describes the blockchain technology as a kind of cash book. As soon as a data transaction takes place between sender and recipient, a new position is entered into the cash book – very simple and unspectacular. However, this cash book does not lie in the file cabinet of an accountant, but thousands of copies of the cash book exist on different computers around the globe. As soon as a new position is entered in these cashbooks, it appears in all cashbooks and on all computers worldwide. Each entered line remains forever and unchangeably in the cash book and is authenticated each time by hundreds of computers. This makes the blockchain virtually forgery-proof compared to other systems. Skella chooses a simple example: John gives Sue a small amount of money in front of hundreds of people. All people who observe the process can confirm that John really gave Sue the money and how much. The control over the transaction is thus in the hands of hundreds of people and no longer in the hands of a single actor (such as a bank).

It is important to understand that control is solely over the transaction and not over who John and Sue are. Because every transaction participant in a blockchain is anonymous, unless he wants to be recognized. In addition, a blockchain can contain transactions of any kind of information. It is not limited to financial transactions. In addition, information contained within a blockchain can be traced at any time – even for new participants.

Why do we need blockchains?

The blockchain is regarded as a technological enabler and can help to handle existing processes faster and more cost-effectively. It extends the scope of action beyond monetary transactions and gives us more technological possibilities to handle a digital transaction. Payment experts describe the blockchain as a revolution on the technical infrastructure level as well as on the business level.

This is mainly due to the fact that the technical construction of a blockchain ensures that the information cannot be changed. Thus, it can be traced at any time when, why and how a new item was noted in the digital cash book. On the one hand, this ensures that digital ownership rights can be established beyond doubt. On the other hand, it can also be ensured that the original and copy of a data record can be clearly distinguished from each other. All transactions via blockchain can thus be processed securely without a dedicated central intermediary.

At the moment, however, the application possibilities of the blockchain are still being examined very carefully. The currently best known public blockchain actually has to do with money. It maps transactions in the well-known Internet currency Bitcoin and thus represents a kind of Bitcoin cash book which authenticates Bitcoin items of various participants. The possible applications of blockchain technology are endless. However, most processes are still in the development phase. Once the breakthrough has been achieved, a previously clear weak point in Internet traffic – the digital identity – can be determined with legal certainty by the blockchain.

Then we could conclude contracts online or even go digital.