Blockchain explained! Here’s how to understand the blockchain & the technology behind Bitcoin & cryptocurrency.
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What is a Blockchain?
A blockchain is essentially a super secure form of record-keeping. It’s made up of a list of digital transactions, information, data, or whatever else you can think of, that are grouped together in “blocks” then added to a row of past blocks to form a “chain,” hence the name “blockchain.” What powers the blockchain is a network of computers (or nodes) working together to verify each transaction & adding it to the chain of blocks so it’s viewable to the public & can’t be changed or edited retroactively. This makes it virtually impossible for human error to ever occur, therefore ensuring the blockchain’s long-lasting integrity.What Does it Do?
Blockchains operate autonomously, meaning they’re self-governed & their actions are carried out without any outside control or influence whatsoever. In the case of Bitcoin, it solves the problem of double-spending by ensuring that each unique transaction doesn’t occur more than once. Like I said earlier, data on the blockchain is resistant to any modifications. The only time it can be retroactively altered is when a majority of the computers in the network agree to let these modifications take place. But doing so consequently alters subsequent blocks.Properties of the Blockchain
If I wanted to send you $1,000 using a traditional bank wire, I’d have to pay between $35-$45 in fees & wait between 3-5 business days for you to get your money. But if I wanted to make this same transaction using Bitcoin, you’d be getting your money within minutes at a tiny fraction of the cost, if not free! It’s because blockchain technology’s autonomous nature allows for transactions to take place directly from one person to another without the need for third-party services to regulate the transaction (like PayPal or Visa). It simply facilitates the transaction for cheaper AND faster. It’s also extremely secure. Not only is its foundation based on cryptography, but its decentralized nature means there’s no single access point in which hackers can exploit it, thus making vulnerabilities within the system practically non-existent. Take a local website for example, say, LosAngelesDentists.com. This site & all its data, images, & other relevant forms of data are likely stored on a server based in Los Angeles or in the nearby vicinity. Basing it in one specific location makes it “centralized.” Blockchains are “decentralized,” meaning their information is stored on thousands, if not, millions, of network computers all across the globe. Any hacker looking to taint the data would have to access each & every one of these computers at the same exact time! Ledgers based on blockchain technology are also open & public, making them easily verifiable. Anyone can view any transaction for any amount at any time, while still keeping user identity anonymous. Additionally, it’s designed to check in with itself in a sort of self-auditing manner. Think of Dropbox for example. Let’s say you & I are each editing a Word document & we open it from two separate locations. You edit the first half of the document & keep the second half the same, while I edit the second half of the document while keeping the first half the same. If we both try saving our own respective copies, there would be conflicting versions of that same document. Blockchain takes care of these conflicts by making the entire thing void. It’s not until both you & I make the same edits on each of our computers that it’s finally approved & saved on Dropbox without any conflicts being created.Bitcoin’s Blockchain
Satoshi Nakamoto was the first to conceptualize & implement blockchain technology when he introduced Bitcoin to the public. As I said before, the Bitcoin blockchain is upheld by a network of nodes that verify each & every transaction in a process as “mining.” Mining involves setting up a computer & connecting it to Bitcoin’s blockchain network using a client designed specifically for validating & relaying transactions. Once connected, the computer is automatically required to download a copy of the entire blockchain. It’s at this point that the computer can begin solving complex mathematical puzzles to verify transactions in a process called “proof-of-work.” Once a puzzle has been solved, the transaction is added into a block, a new copy of the ledger is distributed to the entire network, & the miner is rewarded with a certain amount of Bitcoin. Now, say you’ve sent me 1 BTC, the transaction has been verified, & it’s been added to the latest block; since then, another newer block has been created & added to the chain. It’s said that the block in which our transaction can be located is “1 block deep.” Most merchants & exchanges won’t consider the transaction confirmed until it’s 6 blocks deep or more. Doing so prevents any possibility of double-spending from occurring. These days, a new group of BTC transactions is accepted & formed into a block every 10 minutes on average.Other Blockchains & Their Practical Uses
There are currently over 1,100 new cryptocurrencies available, most of which use different technology. Bitcoin’s primary function is a transfer of value directly from one person to another...but that’s just the tip of the iceberg. One such other cryptocurrency is Ethereum, which we’ll discuss in further detail later since it warrants its own video. To give you the gist of it though, Ethereum allows for smart contracts to function and also acts as a platform for developers to create & deploy other decentralized applications aka “Dapps.” Another one is Storj. Storj--which raised $3 million in initial seed funding last February--is a blockchain that, in fact, operates on the Ethereum blockchain, which I just mentioned in case you weren’t paying attention! Think of Storj as a decentralized, blockchain-based version of cloud storage systems like Google Drive or Dropbox. Say you wanted to store your old photos on the cloud since they’re taking up so much space on your phone or hard drive. Storj will take your photos, break each photo up into smaller files, encrypt each file for safety & security purposes, then distribute them to be stored across other hard drives within the Storj network. Whenever you want to retrieve it, each & every file is pulled from the hard drives, unencrypted, then pieced back together to be placed back in your possession. Since it’s peer-to-peer, there’s no need for a third party (like Google or Dropbox) to facilitate this process because you (the renter) are paying the hard drive space owners directly in the form of STORJ tokens. Yes, that’s right: if you have extra space in your hard drive you’re willing to rent out, you can earn some extra money by making it available to the Storj network so that anyone who wants to rent some space will have a place for their files; kinda like how miners use their computers for mining within the Bitcoin network.Who Benefits from the Blockchain?
From a global, macro perspective, it’s easy to see how blockchain technology can revolutionize industries all across the globe; not just the financial sector. From eliminating all forms of fraud to improving online voting systems, blockchains automate processes that were previously considered extremely time-consuming, extremely expensive, or both; it’ll get the same things done--or more--for less work at a lower cost! Even the four largest accounting firms in the world, known as the Big Four, are hopping aboard the blockchain bandwagon. The Big Four is comprised of Ernst and Young, KPMG, PricewaterhouseCoopers, & Deloitte. The latter three are in the process of developing their own private blockchains, while Ernst and Young not only started accepting Bitcoin payments for their consulting services, but also provided each of their Swiss employees with cryptocurrency wallets & even installed Bitcoin ATMs in each of the Switzerland offices! Ethereum founder Vitalik Buterin (who I consider a godly superhuman genius) put it perfectly with the following: “Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”
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