The principle of peer-to-peer transactions
The ability to participate in peer-to-peer transactions is yet another main principle of blockchain technology.
This article will explain how peer-to-peer transactions work using an example of Bitcoin, which is a financial application of blockchain technology.
This being said, the transactions do not have to be about finances. For example, they could be about a food moving from a farm to a processing plant to a packing plant and finally to a store where customers buy the food. Blockchains are about information and the chain doesn’t even have to stop there. For instance, records about foods on a blockchain network could end not with just customers buying the food at a retail location, but with customers leaving reviews about what they thought about the food. Having this information about the food in one location could be beneficial to all parties involved in the creation, processing, transportation and even consumption of the food, yet this is something that is virtually impossible to implement without blockchain technology because currently each party is likely to have its own database, information system, and customer management system. Information systems of different parties are also likely to not communicate well and not exchange data with each other easily, which is the problem that exists in many industries today and which is why blockchain technology could play an important role in some many industries across the globe.
How peer to peer transactions work
When a user on the Bitcoin network wants to send funds to a different user, he or she sends funds to an address. Bitcoin and many other blockchain networks do not use a concept of “from addresses,” meaning that funds to an address are incoming. Because the network stores on the transactions on a ledger and the transactions immutable, there is no reason for the network to store the “from” information publicly. It can still keep track of all the coins exchanging hands and make sure that there are no coins being added to a circulation in a way not described by the network.
This is similar to what happens when you wait for a public bus or a train that will take you to your destination. All you really care about are two things. First, when will the bus get here? Second, when it I get to my destination?
To get answers to these questions and be completely satisfied with the service, you don’t need to know where the bus is coming from and what has been happening to it before it arrived to the bus stop where you entered the bus.
With public transportation in big cities, it is almost inevitable that someone was happening with the bus that you’d not be happy about if you knew about it.
For example, the bus may have had a really bad smelling homeless person on it. It is also possible that the bus almost got into an accident a few stops before it arrived at your stop or had a flat tire.
However, you don’t know any of this. There is no need for you to possess any of this information. You simply get on the bus when it arrives at your stop and you go where you need to go. If anything, it is better for you not to know what has been happening before.
It may seem that the story about a line of bad events happening to a bus that you are about to use would have nothing to do with cryptocurrencies in general and Bitcoin in particular, but the story is perfectly applicable to public blockchains, regular fiat currencies and assets in general.
In economics, the principle of all assets in a same group being equal and interchangeable is called fungibility.