How block chain works

Blockchain technology is probably the best invention since the internet itself. It allows value exchange without the need for trust or for 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:

We can trust each other. Rainy or sunny, the losing one 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.

We can turn the bet into a contract. With a contract in place both parties will be more prone to pay, however, should any of the two decide not to pay, the winner will have to pay additional money to cover legal expenses and the verdict might take a long time. Especially for a small amount of cash, this doesn’t seem the optimal way of managing the transaction.

We can involve a neutral third party. Each of us gives $50 to a third party, she then will give the total amount to the winner. But hey, she could also run away with all our money. So we end up in one of the first two options: trust or contract