This is another installment of Learning Crypto.
Today I want to explain the basics of a blockchain and what is required to make it work. So first, let’s explore how the idea of a blockchain came into existence.
Satoshi Nakamoto, the anonymous creator of Bitcoin, is who we should also thank for the invention of the blockchain.
The blockchain was created as the means to accomplish peer-to-peer value transfer that provides a way to ensure that each bitcoin is legitimate and each transaction is verified and cannot be double spent.
A blockchain is basically a group of transactions that have been verified by the distributed network and are organized into what are called blocks. Once these blocks are filled, they are then verified and added to the chain. They essentially lock in the blocks that preceded them.
It is in this way that a blockchain forms a public ledger where these transactions can be viewed. This also makes it difficult to alter these transactions in a way that allows shady players to falsify transactions for their benefit.
It’s important to note that although these transactions themselves are public, the individuals who participated in the transactions, their addresses are kept somewhat anonymous.
For the sake of keeping things clear, this video will be focusing on the Bitcoin Blockchain.
In order for the blockchain to function, there needs to be some key actors called nodes and miners.
The network is what organizes these transactions into the blocks and verifies that the transactions are legitimate.
These are the jobs filled by what are called Nodes and Miners.
- Miners have a couple different roles in the Bitcoin blockchain. They create new bitcoins by running a specific computer program that after time unlocks a certain amount of Bitcoin that is awarded to them. They also are the ones responsible for creating the blocks of the blockchain.
They organize transactions into these blocks and send these blocks to what are called Nodes to be verified. If their block is selected to be put in the blockchain they are rewarded with what are called block rewards in addition to a percentage of the transaction fees paid by those conducting the transactions.
- Nodes are responsible for more or less monitoring the entire blockchain and ensuring that fraudulent transactions can not occur.
It is the distribution of these nodes that ensures the entire network cannot be manipulated by individuals who wish to create fake transactions for their own monetary benefit. A benefit for being a node for the Bitcoin blockchain, in addition to further securing the network, is that it gives you complete control of your investment in Bitcoin. The downside to being a node is that you are required to download the entire Bitcoin blockchain, this takes up a lot of space and time.
Just because the idea of a blockchain began as a way to establish true peer to peer value transfer does not mean this new type of technology is limited to just that.
This technology can be applied in ways that remove the time and cost of third party middlemen in different areas of business.
Additional Reading/Sources:
More on Miners
More on Nodes
Implications of the Blockchain
Great Blockchain Infographic