Blockchain Basics!

And so it begins!

Welcome, I plan on diving into the world of cryptocurrency and blockchain technology. As I learn more and post about what I discover, I hope to educate not only myself but anyone who cares to join me.

To set the record straight, my journey actually began a few months back. I stumbled on a YouTube video talking about Bitcoin, the blockchain and how it all began. And I was fascinated! All this has been around a long time now (bitcoin started in 2009), and I have known of it’s existence for a good few years, however I think I always thought of it as something which would fade away. The same things ran through my mind that I hear other sceptics saying, “What is it?”, “How is it worth anything? It’s all made up!”, “What’s the point?”.

What is blockchain technology?

Money exists to facilitate trade. Over the last few centuries the world has opened up and everyone is trading with everyone, and these trading pathways have become increasingly complex. All trades are recorded through bookkeeping (the keeping of financial records). These records are normally private and closed to the public. Private records mean that when we trade with each other we need to use a middle man or trusted third party such as banks, governments, accountants, paper money. The trusted third party is used to verify the transaction. Blockchain technology allows us to keep up to date records of all transactions via a linked network of computers over the internet. These records (ledgers) are not private, they are public, and distributed across the entire network. Each node on the network has a full copy of the ledger. This is the blockchain. Every transaction is logged in the blockchain recording the time, date, amount and participants. Nodes must run complex mathematical algorithms to verify the transactions taking place. Only if thousands of nodes come to agreement that the transaction is legitimate, can the transaction actually take place and be added to the ledger. The computing power required to verify the transactions is pretty huge! Computers completing this task are called “miners”. The miners are “paid/rewarded” in the digital currency for verifying the blockchain. If someone tried to corrupt a node, or to send a false transaction, the nodes wouldn’t come to agreement and the transaction wouldn’t be able to take place.

Using the blockchain gives us a shared single source of truth, with no need for a third party like a bank or government to be involved.

Why is the blockchain important?

The invention of blockchain technology may prove to be one of the most important innovations of our time. Blockchain applications aren’t limited to just currencies though, and that might be the true power of all this. The cryptocurrency being transacted in the network can represent a number of different things, and new use cases are being developed daily.

Each cryptocurrency coin can be programmed to represent anything you want, for example a Bitcoin can be divided into 100 million units. Each unit has a unique identity and is uniquely programmable. A unit couple represent euros, dollars, property, a share in a company, a unit of electricity or gas and even a vote in an election. This makes cryptocurrency far more than a store of value and opens up a huge array of possibilities.

This “programability” means that it could even be possible to send a payment that can only be traded for a specific item or service. I don’t give to charities right now, because how do I know that they are going to spend that money on those who need help and not just pocket it themselves. With cryptocurrency its possible to program rules into the currency itself. This means I could make a donation to a charity and that currency could only be spent on goods and services from certified providers which help the cause in question. You could even program the currency to return to the sender if it is not used in a certain timeframe.

Where next for me?

I hope the above has helped explain the blockchain and some of its uses. It can be a hard concept to get your head around when you first read about it, and my description above is by no means in depth. I’d implore anyone interested to also do some of your own research as this is just the tip of a very large iceberg!

Please feel free to leave me comments or get in touch if you want to discuss anything or even teach me a thing or two!

In my next post I will try to explain some of the most well established cryptocurrencies out there right now and what they hope to achieve.