A Non-Technical Guide to Blockchain

Lately, I’ve been finding myself having to explain Polygon to incredibly smart people who are either (a) not technical, or (b) skeptical about blockchain. I’ve really enjoyed this because it allows me to abstract away technical jargon and also get focused on use cases. And as the great Albert Einstein once said, “If you can't explain it simply, you don't understand it well enough.” that’s what I am seeking to do in this post if you find yourself in either of these categories. 

I broke it into sections: What is Polygon, How Does the Polygon Blockchain Work, Why Build on Blockchain vs “Usual Way”, Who Pays For This Thing, Why A Crypto Token Is Needed, What’s Actually Being Built?

What is Polygon?

Polygon is a blockchain that allows developers to create and deploy decentralized applications (dApps), which is an application that runs on a network of independent computers, which is in contrast to a standard application, that runs on a centralized server. This setup opens up a unique opportunity for app development by ensuring that no single entity controls the system.

A lazy explanation is Polygon is the blockchain version of AWS; put simply, Polygon is simply an infrastructure layer for decentralized apps to deploy on. AWS, provided by Amazon, allows people to access powerful cloud-based computers for creating and running apps, websites, and more, with a pay-as-you-go pricing model. On the other hand, Polygon Protocol focuses on reshaping digital ownership. It's built on the Ethereum network, a platform that allows users to create and manage digital assets and applications without relying on a central authority. Polygon makes transactions on this network faster and more cost-effective, which encourages people to take control of their digital creations and share them securely and affordably. This positions Polygon as an innovative solution for the future of online ownership.

This has interest to both developers and end users, particularly due to the transaction and what you’re receiving from that transaction (money, digital goods, investment, rewards, etc.), whatever it may be, being independent of a usually required middleman. And with Polygon, you’re building on a platform where using these apps are cheap with low transaction costs, and where as a developer building and deploying is easy. This blockchain sits on top of Ethereum, where Ethereum is expensive per transaction as part of maintaining it’s robust security. Polygon is the transaction layer, Ethereum is the settlement layer for all of those transactions to be recorded.

Why build something on a blockchain vs. the usual way people build?

Some, or all, of what you’re building within your app benefits from being put on an open and transparent network not owned by a middleman or one person. This can enable developer and user benefits, depending on the use case. The use case varies greatly, which is why people building on Polygon range from projects initiated by small creators (basic digital art, to cultivated creator communities), gaming companies, financial institutions and instruments, and even large Fortune 500 corporations. Think of it as a product feature of the internet; not everyone needs or will benefit from tapping into it, but there are use cases where it is going to revolutionize products.

As a platform for dApps, we’re most interested in these categories where it has tangible benefits to giving users more autonomy, ownership, and/or benefits from reducing a middleman.

  1. Gaming: The global digital goods gaming business is approx $150B - as more money is spent, more ownership autonomy will be an expectation. Digital goods being hosted on a blockchain allow no entity to oversee it, while also allowing users on-ramps through marketplaces.

  2. Supply chain management: Blockchain can significantly improve supply chain transparency and traceability by recording every transaction and movement of goods. This can help combat counterfeit products, ensure ethical sourcing, and streamline logistics processes.

  3. Decentralized finance (DeFi) and Tokenization: Blockchain enables the development of DeFi applications that provide financial services such as lending, borrowing, and trading without the need for traditional intermediaries like banks. This democratizes access to financial services and promotes financial inclusion.

  4. Identity management: Blockchain-based identity solutions can provide secure, tamper-proof digital identities, empowering individuals with control over their personal data. This can simplify processes like KYC (Know Your Customer) and reduce identity theft risks.

  5. Voting systems: Secure and transparent voting systems can be developed on blockchain platforms, minimizing the risk of fraud and increasing trust in election outcomes. This can potentially increase voter turnout and encourage more democratic participation.

  6. Loyalty and Rewards: Building something on blockchain rather than not using it is primarily about providing users with a sense of ownership over digital collectibles, which enhances their value emotionally and economically. Blockchain allows for the easy transfer of ownership and ensures the rarity of the collectible, similar to physical collectibles like sneakers or trading cards. In addition, blockchain-based digital collectibles offer unique advantages over traditional physical collectibles, such as programmability, the ability to be used as an access pass, and dynamic updates. Furthermore, blockchain enables brands to add utility in the future without technical barriers, allowing for seamless third-party collaborations and token-gated access.

  7. AI: With AI producing content that easily deceives, verifying authenticity of source materials on blockchains will allow for verifiable authenticity that will be hard to replicate in the current centralized systems. 

Ok, so if other computers are needed to work this open network, how does that work?

In a blockchain network, all participating computers, also called nodes, work together to maintain a shared ledger of transactions. When a new transaction is made on the blockchain, it is broadcasted to all the nodes in the network. Each node then independently validates the transaction, and if it's deemed valid, the transaction is added to the blockchain ledger. Right now, a centralized database mimics these behaviors at no explicit and direct cost to you, but the wall gardens they create have downstream consequences for users and developers, thus building on these public networks owned “by the people” is significantly better for users and developers than the large establishments today.

To maintain the integrity of the blockchain, every node must agree on the state of the ledger. This is achieved through a consensus mechanism, which is a set of rules that the nodes follow to decide which transactions are valid and should be added to the blockchain. Depending on the blockchain, there are different consensus mechanisms, such as Proof of Work, Proof of Stake, and others.

The consensus mechanism ensures that no single entity can control the blockchain network or manipulate the ledger. Instead, all nodes work together to maintain the network's security, transparency, and immutability.

To summarize, in a blockchain network, all participating computers work together to maintain a shared ledger of transactions through a consensus mechanism that ensures the network's security and transparency.

Ok, so they all work together and put a lot of time and effort into maintaining this ledger. How do they get paid for this work? No one does anything for free!

When a transaction happens on Polygon from any of the activity of the dApps discussed above, you pay a transaction fee. So if you sent a payment to someone, if you purchased a weapon item in a video game, or sold your Nike digital pass, each of these actions created a transaction, and thus a transaction fee was charged to the user. For Polygon, it varies, but is about $0.0248 USD for each transaction. These fees paid go to the people working to maintain those transactions, so they are incentivized to do it. If they didn't make money doing it, then no one would want to secure the network by verifying transactions.

I don’t get why you need a crypto token like MATIC to do this; why can’t you just do it with cash? Why we need to use a crypto token like MATIC instead of just using cash, like dollars, for transactions on a blockchain network?

So, I just priced the transaction in USD for you, so now you’re wondering why you’d ever even need a crypto token to begin with.

While it might be possible to use dollars, using a crypto token has its advantages. Some people are skeptical about crypto tokens because there are scams out there, but many tokens have real value and a specific purpose within their networks.

For example, MATIC is the digital money used within the Polygon network. It's needed to pay for services like sending transactions or running smart contracts (sort of like digital agreements). Without MATIC, the whole system wouldn't work. This is true for other crypto tokens too; they're important for making their networks run securely and efficiently.

One big reason why crypto tokens are better than cash for a blockchain network is that they don't rely on banks or other middlemen. This means that no single authority can control or censor transactions, making the whole system more independent. Plus, using a token helps the network reach agreements more easily because everyone using the network has a shared goal: to keep it safe and running smoothly.

Another advantage of using crypto tokens is that they make transactions more transparent and easy to check. When you use tokens, all transactions are recorded on a public, secure digital ledger that's really hard to tamper with. This makes it simpler to track and verify transactions, and harder for people to cheat. On the other hand, cash transactions can be more difficult to monitor and are sometimes easier to manipulate.

Lastly, having a native crypto token helps the network create a strong economy that can grow and develop over time. By having a token with a limited supply or an adjustable inflation rate, the network can balance how much is available with how much people want. This helps keep the network sustainable in the long run and encourages new ideas and improvements within the blockchain community.

Ok, so I get blockchain vs. a centralized database, and I get why a crypto token is needed, but why and what are people even building on Polygon? What are the real use cases of building on a blockchain?

There are over 40,000 dApps on Polygon, but here are some companies building on Polygon that are exciting categories:

  1. Starbucks: Loyalty and Rewards - the best rewards program in the world is going on chain through Starbuck Odyssey

  2. Nike: Digital Collectibles and Loyalty - create digital collectible Nike gear, wearable in digital worlds and games, and also get loyalty access to Nike items.

  3. Reddit: Digital Collectibles - the market cap is already $75M for the digital collectibles they offer on Reddit, which is all powered by Polygon.

  4. JP Morgan: DeFi - executed its first-ever cross-border transaction using decentralized finance on a public blockchain

  5. Salesforce: Build software to help their clients onboard to Polygon with its management platform to help its clients create blockchain-based loyalty programs

  6. Nexon: The largest game publisher in Korea, is putting their large IP, Maple Story, with a 180 million registered users, on blockchain.

  7. Hamilton Lane: Access to Private Markets - with nearly $824 billion in assets under management at Hamilton Lane, they built on Polygon so that users can now access private equity markets by tokenized partial ownership through Polygon.

Polygon is revolutionizing the way we build and interact with applications by providing a decentralized, transparent, and secure platform for developers and users alike. From gaming and supply chain management to DeFi and identity management, Polygon is enabling a wide range of use cases that not only empower users with greater autonomy and ownership but also promote more efficient and secure systems. With prominent companies like Starbucks, Nike, and JP Morgan embracing the potential of blockchain technology through Polygon, it is evident that Polygon is playing a significant role in shaping the future of the digital world. As more developers and businesses continue to explore the unique benefits of building on Polygon, we can expect to see an even greater impact on industries across the board, fostering a more innovative and inclusive digital landscape.

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