What are “blockchains”, “smart contracts”, and “DAOs”, and why do they matter?

A blockchain is basically a big public database that’s both owned no one and everyone. Anyone can read it and write entries in it, and it's near impossible to hack.

David Head
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Show Notes

The Ethereum blockchain is the most popular blockchain that enables you to write “smart contracts”, which can create “decentralized autonomous organizations”, also known as “DAOs”.

To explain what a blockchain is in simple terms, it’s basically a big public database that’s both owned no one and everyone. Anyone can read it and write entries in it. So if someone goes through my fictional Freelancing Class, I can write on the blockchain that they passed.

But what if someone fakes my signature? That's near impossible to do without a hacker physically tricking me into giving them my password. This is because of cryptography.

This factor of “trusting the database” is important especially when you create your own cryptocurrency. Then you have to store a ledger of who owns how many cryptocurrency tokens. Ethereum lets you do that.

How the “decentralization” works then is through the “smart contracts”. This is a fancy way of saying a contract written in code. Since the cryptocurrency tokens are created with code too, you can write code that says “if homeowner A sets their home for sale at 10,000 tokens, and another pays 10,000 tokens, automatically transfer the home title to the new homeowner”. 

In this future scenario, home titles will be stored on a blockchain like Ethereum and society will trust those records as truth. So you will be able to do this. Since in this future scenario, there are no realtors or real estate governing bodies storing title data anymore, and it lives on the blockchain now, you can consider the transaction and record of ownership “decentralized”.

You can imagine this scenario applied to credentialing, ownership, votes, art, and an infinite amount of ways people haven't even imagined yet.

Building on this concept of "decentralization". You can also program in voting and governance power over things like the bank account (often called a treasury). So token holders could vote on things like policy, token allocation, and even leadership. All of this can be done in an easily auditable way as well via tools like Etherscan.

Why is it important to be easily auditable? Imagine if you could see exactly where your non-profit donations end up. Or your tax money. How much money ends up in the leaders hands versus the actual people you intended it for? This audit trail is not only easily possible with blockchains, it's how everything works by default!

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