A friend of mine recently asked me. “What is Blockchain? Why is everyone talking about it” which brings me to this article which I promised to answer, not just his question, perhaps the question of many who are living through this Cryptocurrency saga.
It’s a matter of time everyone should load up their knowledge about Cryptocurrencies and the Blockchain (It goes hand in hand) because there’s a really good chance it might become the alternative currency of our future with more organisations such as PayPal, Tesla and even Starbucks accepting it as a method of payment. Yes no joke, Starbucks, here’s the link to the article.
This is a big deal, it’s not surprising we’ll be making transactions with Cryptos daily in the next 10 years or so. Without further ado, let’s get into it.
What Is Blockchain?
Before understanding what Cryptocurrencies are, you have to understand the utility behind them. What happens when you send a Bitcoin over to Tesla? Where is the transaction recorded? Or is it even recorded?
This is where the Blockchain comes in. As the name suggests, think of Blockchain as a chain of square blocks, where each block contains information and data about the details of the transaction.
The details of the transaction consist of the sender, the receiver and the amount of the transaction. On top of that, it also holds something called the “Hash” (think of it as a fingerprint) where each block holds a unique hash and it identifies the details of that block, kind of like a receipt.
A “Hash” is a set of unique numbers to mark a block whenever a Cryptocurrency is mined.
And whenever something changes inside a block e.g. Transaction details that have been tampered with, it causes the “Hash” to change too. A block also holds the “Hash” of the previous block so that it can be “organised” in order. Yes, this is where the name comes from.
With the Block constantly updating its “Hash”, it actually makes it really secure.
For example, if the 2nd block in this chain is tampered with, the “Hash” of this block changes and it will make the rest of the chain invalid.
As for the first block, since it’s the first one in the chain, it is known as the “Genesis” block and it should be the only block without any data of the previous “Hash”.
Before we move on, here’s a screenshot of the latest transactions in the Bitcoin blockchain.
Decentralisation & Nodes
Here are 2 other terms you may have heard of in your “Cryptoventure” (Crypto Adventure, get it?) ok better continue with writing.
Let’s start with Decentralisation.
A simple google of the term will bring you the definition, but really, what does it got to do with Cryptocurrencies and the Blockchain?
As the definition suggests, “transfer of control of an activity or organisation to several local offices or authorities rather than a single one” this brings me to the next point about Nodes.
Your understanding of the plain definition of “Decentralisation” is probably, “not single, multiple” and yes this is what gives the Blockchain another layer of security.
The Blockchain is decentralised and all the information of a Blockchain, let’s take the Bitcoin Blockchain as an example, are given to every “computer” (AKA person) who are accessing the Blockchain. These people or computer or software, however you want to call it, are known as “Nodes”.
So how does the Blockchain being decentralised helps it with security?
Remember the point where any block is tampered with the details of the “Hash” changes? When the Nodes of the Bitcoin Blockchain sees this irregularity, this block becomes invalid and it takes all of the Nodes to verify each block in order for the whole Blockchain to be valid.
Essentially, because the Blockchain can be accessed by everyone (Decentralised) the Nodes become a consensus and everyone works together to verify if every block is secure.
Proof Of Work
If you think ahead of time, surely there must be a way to tamper with all of the blocks in the chain if one block is tampered with so as to cover up the possible wrong-doings, right?
That is actually possible and this is where the Proof Of Work comes into play. The “POW” is a way to slow down the creation of blocks in the blockchain, it takes a minimum time of 10 minutes to create or change the details of the blocks which makes it really impossible for someone to change and tamper with all the blocks in the chain as it is too long.
Concerns With The Blockchain
With all the “security” why is it not adopted as the brand new way of making transactions?
There are a few concerns with this, firstly, since the information of each transaction are recorded with their “Hash” numbers and not their personal information, it makes each transaction technically private. This could be an issue as it encourages criminals to use Cryptocurrencies as a way of making transactions.
The next point is, due to the Proof Of Work, a security feature in the blockchain, it makes updating of the transactions into the chain really slow. Imagine waiting for 10 minutes for your receipt after a meal, everywhere and every time.
Another point that makes the mainstream implementation of Cryptocurrencies difficult is the acceptance and regulations of governments around the world. Due to the concerns mentioned above, governments can very well ban the usage of Cryptos as they remain skeptical. However, with large organisations like PayPal allowing the use of Cryptos as a form of payment, this concern may have grown smaller and probably accepted in years to come.
With a better understanding of the Blockchain, it’s not hard to understand the different Cryptocurrencies available now as each of them lies in its own blockchain (Some utilises the Ethereum/Bitcoin Blockchain). Blockchains such as Bitcoin and Ethereum are widely used due to their characteristics (which have been improved throughout the years) and they are technically the OGs.
However, as technology advances, we may see an entirely new blockchain that fixes the concerns we may have now and till then, don’t let this idea slip away.
If you’ve learned a thing or two from this article, give it a share or comment if it has helped you better understand what the Blockchain is!
And if you are bullish on this idea and want to hop on to the crypto bandwagon but not sure how to, check this article out for a risk-free way to earn interest up to 8.6% per annum while you hold your Cryptocurrencies. Click this link to use my referral code and we’ll both receive $10 in Bitcoin when you deposit a minimum of $100.
See you in the next one!