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Bitcoin technology is probably the best invention since the internet itself. It allows value exchange without the need for trust or a central authority. Imagine you and I bet $50 on tomorrow’s weather in San Francisco. I bet it will be sunny, you that it will rain. Today we have three options to manage this transaction:

  

𝐁𝐢𝐭𝐜𝐨𝐢𝐧 𝐄𝐱𝐜𝐡𝐚𝐧𝐠𝐞 𝐒𝐮𝐩𝐩𝐨𝐫𝐭 𝟏-𝟖𝟑𝟑-𝟖𝟔𝟏-𝟓𝟔𝟔𝟔 𝐁𝐢𝐭𝐜𝐨𝐢𝐧 𝐇𝐞𝐥𝐩𝐥𝐢𝐧𝐞 𝐍𝐮𝐦𝐛𝐞𝐫

1. We can trust each other. Rainy or sunny, the loser will give $50 to the winner. If we are friends, this could be a good way of managing it. However, friends or strangers, one can easily not pay the other.
2. We can turn the bet into a contract. With a contract in place both parties will be more prone to pay. However, should either of the two decide not to pay, the winner will have to pay additional money to cover legal expenses and the court case might take a long time. Especially for a small amount of cash, this doesn’t seem like the optimal way to manage the transaction.
3. 𝙱𝚒𝚝𝚌𝚘𝚒𝚗 𝙴𝚡𝚌𝚑𝚊𝚗𝚐𝚎 𝚂𝚞𝚙𝚙𝚘𝚛𝚝 𝟷-𝟾𝟹𝟹-𝟾𝟼𝟷-𝟻𝟼𝟼𝟼 𝙱𝚒𝚝𝚌𝚘𝚒𝚗 𝙷𝚎𝚕𝚙𝚕𝚒𝚗𝚎 𝙽𝚞𝚖𝚋𝚎𝚛
4. We can involve a neutral third party. Each of us gives $50 to a third party, who will give the total amount to the winner. But hey, she could also run away with all our money. So we end up with one of the first two options: trust or contract.

Neither trust nor contract is an optimal solution: We can’t trust strangers, and enforcing a contract requires time and money. The blockchain technology is interesting because it offers us a third option which is secure, quick, and cheap.

Blockchain allows us to write a few lines of code, a program running on the blockchain, to which both of us send $50. This program will keep the $100 safe and check tomorrow’s weather automatically on several data sources. Sunny or rainy, it will automatically transfer the whole amount to the winner. Each party can check the contract logic, and once it’s running on the blockchain it can’t be changed or stopped. This may be too much effort for a $50 bet, but imagine selling a house or a company.

This piece explains how the blockchain works without discussing the technical details in depth, but by digging just enough to give you a general idea of the underlying logic and mechanisms.