The online world keeps talking about blockchain technology, and you keep wondering what all of this means. If you have not been reading about the blockchain or cryptocurrencies, then the chances are that you find their explanations and definitions difficult to digest. You don’t have to worry if you don’t understand these technologies because you are not alone. In fact, there are still more people on earth that don’t understand the blockchain than there are people who do. If you want to wrap your head around this technology because you think it is the future of our world, you will love this blockchain starter guide.
Let’s dive into the details of this guide so you can start understanding this technology as soon as you are done reading this. When someone else asks you what blockchain is, you can then explain to them within a few minutes what this technology is and what potential it holds. So, let’s get started.
A Little History of the Blockchain
While the technology has emerged on the scene just a few years ago, the work on it has been in progress for many years. You will be surprised to know that there were people in the 90s who were already proposing something similar to the blockchain and Bitcoin, the first cryptocurrency based on this technology. You might want to search Scott Stornetta and Stuart Haber if you want to know about the people who gave the idea of the blockchain. Yes, these people were already proposing to the world that a technology like blockchain was possible.
Then there was a time very close to the start of the 21st century when some people had already started to develop a cryptocurrency. At that time, the currency was named bit gold and the person who was trying to make that concept a reality was Nick Szabo. However, it was not before 2008 than someone came up with not just the idea but a complete implementation of it to startle the world.
Satoshi Nakamoto is the person or group of people that developed the first cryptocurrency. As mentioned above, the first cryptocurrency was Bitcoin. However, in this blockchain starter guide, we’ll keep our focus on the blockchain right now rather than going into the details of Bitcoin. So, Satoshi Nakamoto told the world that cryptocurrencies were a reality by publishing a whitepaper about the first cryptocurrency Bitcoin. In 2009, the Satoshi Nakamoto anonymous group or person had already used the blockhain technology practically to produce Bitcoin.
However, you can’t say that the creation of Bitcoin was the biggest achievement and milestone in the history of the blockchain technology. The more important step was taken in 2014 when it was clarified that the scope of this technology was not limited to cryptocurrencies. The proponents of that time had suggested that the blockchain technology had a lot of potential and other technologies could be based on it to create new solutions for the world. For example, you have a variety of applications based on the blockchain. You can use them right now if you want to.
Since the inception of the blockchain technology, the two most famous currencies have been Bitcoin and Ethereum. You have to keep in mind though that Ethereum is not just a cryptocurrency like Bitcoin. It is a complete framework that you can use to create more applications on the blockchain. Just so you are curious even at this point, you should know that Satoshi Nakamoto is still anonymous today. No one knows if this name belongs to a person or a group of people or a company. Some people did claim to be Satoshi Nakamoto but they could not prove their identity. On the other hand, some people are suspected to be Satoshi Nakamoto. The reality is still buried somewhere.
The Basics of the Blockchain Technology
If you look at the name, you will get some basic idea of what this technology is all about. So, let’s break the word down to understand the concept. First of all, you have the word block, and yes there are blocks used in this technology. The second word is chain, and yes, there is a long chain in this technology. What does this chain consist of? The simple answer is blocks. Yes, when you use the blockchain technology, you are creating chains of blocks. Now, the important question here is, “What are these blocks?”
Before we explain the whole concept, it is important for you to know that everything being explained here exists in the digital world. We might give you examples from the real and physical world around you to make things easy, but you will implement them automatically in the digital world. So, when you say the word “block” to describe this technology, you are talking about a digital block in which some information is stored. What is the information stored on the block? The information is about a particular transaction that someone has completed. For example, someone bought something from an online retail store.
The details of this transaction will be stored inside the block. When the person makes another purchase from the same or a different online retailer, another block is created. However, this time, the block will be linked to the first block underneath it. When another transaction is made, another block is created that goes under the second block. More and more blocks are created when you conduct more transactions and they form a chain. It is important to understand the three important pieces of information that goes inside every block on the chain.
· Data of the Transaction
Every transaction has some data that makes it unique from any other transaction. If you don’t have that data, you cannot distinguish one transaction from the other. This data does not have to be flawed i.e. it must distinguish each transaction from another transaction. So, when you make a transaction, the date, time, and size of the transaction get stored. All pieces of information go inside the block. But what if two people purchase the same thing from the same retailer at the same time? That’s where the second part of the information comes in.
· Data of the Parties Involved
This is where the data on each party is recorded on the block. If you have made a transaction, the block will record your transaction date and time in addition to your name. Do keep in mind that it is the digital world so the information used to identify you here could be more than just your name. The block might record a completely unique ID that has been given to you in the digital world.
· Data of the Blocks
Now, you have to remember that once a block has been created on the blockchain, it cannot be taken tampered with. It will stay there forever and be identified as a unique block forever. How will you recognize this block as a unique one? Well, there goes an identification mark on the block to identify it and separate it from the rest of the blocks on the chain. This particular code that makes every block unique is called hash. You must not forget that every time a new block is created, it stores the information of the block before it and every single block since the creation of the blockchain.
If someone wants to tamper with the blockchain, they will have to tamper with every block that exists on the chain. That makes hacker attacks nearly impossible. For this reason, the blockchain technology is considered safer than the prevailing technologies in the world for recording transactions etc.
The Workings of a Typical Blockchain Transaction
First of all, you have to pick a particular cryptocurrency to conduct a transaction on the blockchain. There are thousands of cryptocurrencies for you to pick from. Now, since the blockchain starter guide needs to talk about the blockchain, we’ll not go into the details of what cryptocurrencies are right now. However, we will use Bitcoin as the cryptocurrency in our example to make things easy for you. So, you have to have Bitcoin in order for your transaction to be recorded on the blockchain. Here are the steps that will follow.
- First of all, we are talking about the blockchain that records the details of your transaction, so we have to start with a transaction. Let’s say you go to an online store and make a purchase. As soon as you make a purchase with your Bitcoin, your transaction information will be record. The information about your transaction will include the item you have purchased, the retailer you have purchased it from, the time and date of purchase, and some other important meta data of the transaction. All of this information has to be collected in order for it to be recorded inside the block of the blockchain. Now, you might think that this transaction will get recorded onto the blockchain now, but that’s not true. There is a long process involved in that.
- The next thing that happens is the verification of the transaction. The Bitcoin network will have to make sure that the transaction in question has been conducted successfully. In other words, it has to make sure the news is correct and that some transaction was completely just some time ago. That’s where nodes come in. These are people connected to the Bitcoin network to verify every transaction that takes place on the cryptographic network. After the verification of the transaction, the next step is the storage of the transaction information on the blockchain.
- Now that the information about your transaction has been verified as correct, it needs to be recorded on the block first and then on the blockchain. How does that happen? Well, since the transaction has already been verified by the nodes connected to the network, it can now go inside the block. However, one important thing that needs to happen here is the a creation of a unique ID for the block.
- The unique ID is what makes this particular block different from every block that exists on the blockchain network. This unique identity, as stated above, is hash. Each hash tells you that a unique block on the chain exists with its own identity. A copy of this particular transaction is then shared with many computer connected to the network. Once everyone has a copy, the ledger (or the blockchain) is the same on everyone’s computer. If someone tries to tamper with one computer, they will have to tamper with another computer and then another etc. That’s because each computer now has a copy of the record of the transaction. Making changes to one block will not be enough anymore.
Why the Need of the Blockchain
This is the most important question that you should ask when you are inquiring about the blockchain. In fact, this is the most common question coming from people who are really interested in this technology but want to confirm that it has some scope in the coming times. So, why was there a need of the blockchain. We can understand that from the concept of centralization. There should be no doubt in your mind that each has its pros and cons, but in the modern and coming times, one will perform better than the other.
You should know at this point that decentralization is at the core of the blockchain technology. When you read further, keep in mind that decentralization will be focused on more than centralization. At the same time, you must not forget that decentralization is the future of the world whereas centralization might be breathing its last.
When you read these concepts, you have to understand the concept of power. When you connect to the internet, you give the power to many companies for controlling your information. For example, when you sign up with an online broker or retailer, you provide them with your information. They store your information through the form on the website. After that, they store all of your information on their servers. These servers are usually owned by them and placed inside their premises. In other cases, the servers can be placed in a different environment, usually a managed IT firm.
Now, it does not really matter where the information is stored. What matters the most is how much control you have over your own information. If the broker you signed up with just right now disappears with your money, what can you do about it? Let’s take a more common scenario. So, let’s say you sign up with an online broker to trade in financial markets. You deposit money in your account and decide that you will start trading from tomorrow. You come the next day, sign in to your account, and get ready for trading. However, when you look at your balance, there is no money in your account.
What if the broker has decided to take some fees from your account that you do not even owe it? You cannot do anything about this situation. The information is in the hands of the broker. You could not readjust your account balance to the amount you had deposited by any means. Why does that happen? Well, because your broker is the centralized power in this situation. It has all your information stored on its servers. It can change your account balance from $1000 to $0, and you cannot do anything about it. In other words, there is only one organization that has power over your information.
If this same organization gets hacked in the future, all your information will be compromised. The hackers will be able to take away all the information from its systems and wipe it off. That’s because all of the information about all the customers of the company is stored on its servers. That’s the issue you want to get rid of with the blockchain.
Decentralization is a great concept that rests at the heart of the blockchain technology. The idea is to shift the power to no particular organization. Just because you have your money in the bank account does not mean the bank has to know every single transaction that you conduct in a day. At the same time, you don’t want the bank to be able to freeze your accounts under some suspicion tomorrow. You want control over your money and information and that’s where decentralization comes in. It makes sure that there is no particular company, business or corporate entity that can take care of your information and money.
So, when you are on the blockchain, the information is stored inside the blocks, and the information about these blocks is shared with every computer connected to the network. So, every node that is connected to the Bitcoin network will receive a copy of the blockchain upon the completion of a particular transaction. No one node or entity can change the information on a transaction and make the blockchain unsecure. In reality, if they try to change one particular block, they will have to change every single block on the blockchain to make their scam work. That’s physically impossible with the computers that the hackers of today have access to.
Is Bitcoin the Same as the Blockchain?
One of the biggest confusions that the world still has to this day is that they think that Bitcoin and the blockchain are one and the same thing. If you think of them as the same thing too, you will be surprised to know the details. You will be shocked to know that they are nothing alike. In fact, the comparison between the two is like comparing oranges to apples. The blockchain is the technology on which cryptocurrencies are created, shared, exchanged, traded, etc.
On the other hand, Bitcoin is only one of the thousands of cryptocurrencies that are on the blockchain right now. You can take the example of a road and a car. You can symbolize the blockchain technology with the network of roads. On these roads, you have many vehicles running each day. These vehicles, in this particular example, are cryptocurrencies. So, can you compare a vehicle to a road? Well, that’s exactly what you are doing when you compare Bitcoin with the blockchain.
You also have to keep in mind that the blockchain technology is not limited to cryptocurrencies anymore. Today, you have people from around the world learning how to create applications on the blockchain. In this blockchain starter guide, you will only know about the blockchain and how it works. However, if you want to know the future of the blockchain technology, you should read about DApps. These are the decentralized applications that have been designed on the blockchain.
The Blockchain and the Future
You cannot talk about anything in the world right now without mentioning the coronavirus or COVID-19. The pandemic has changed the way the world worked. People have become hostages in their own homes, and touching things and exposed surfaces has become taboo. In this scenario, you can easily say that the blockchain is the future of the world. The blockchain technology is taking you into a future in which you will be able to complete all your transactions online. You will not have to have a wallet, plastic card, or even cash. You will be able to use your smartphones to perform all the transactions.
You will need to do some more research in order to understand the concept with even more detail. This blockchain starter guide was supposed to make the concept of the blockchain technology easy for you. Hopefully, you understand the meaning of the blockchain and also know how this technology works. More importantly, you should know why this technology matters so much today and how you can use it in the future to transfer payments securely around the world. Last but not least, the blockchain technology is not limited to the many cryptocurrencies that have been created on it so far. It hosts a lot of amazing decentralized applications that are surely going to contribute to the new world.