So you’ve been hearing the word ‘blockchain’, perhaps interspersed with ‘bitcoin’ & ‘cryptocurrency’, and you may be thinking “am I getting old or is the world getting a little crazy?”
Whether you’re old or young, blockchain is actually much more simple than it sounds. The key is finding information geared towards people like us, which as an emerging technology, is quite rare for blockchain. But, you’ve come to the right place! We will be breaking it down for you, step by step.
Let’s start from the beginning.
The first blockchain was created by a mysterious entity or person that goes by Satoshi Nakamoto in 2008, to create the now infamous digital currency/cryptocurrency called bitcoin.
In creating bitcoin, Satoshi wanted to make electronic cash that “would allow online payments to be sent from one party to another without going through a financial institution.” That means eliminating the use of banks and currencies controlled by governments, which sounds impossible right?
Here’s where blockchain comes in.
Since we’re eliminating authoritative figures who were there to mediate transactions between parties, we need a record-keeper that we can trust but is not controlled by anyone.
The blockchain does this by being an extremely dependable, secure and fair record-keeper, a job traditionally left to banks.
What exactly is a blockchain?
‘Blockchain’ refers to a digital chain of blocks – told ya it was simple!
The blocks within the chain are where all the transaction data lives digitally. And the reason that they are in a chain is that once a block is added to the chain, the data on the block needs to be permanent and irreversible.
The chronological order of the blocks ensures that there is one agreed-upon, unchanging chain of blocks that have been verified by the blockchain network.
Instead of being controlled by an entity like the bank, the blockchain is managed by a network of computers (referred to as nodes on the bitcoin network). These computers are tasked with verifying the information that is added to the block.
Once the network agrees upon a new block of information and it’s added to the chain, each computer downloads that information.
There are as many copies of the blockchain as nodes on a network. This way, if one computer gets hacked, the rest of the network can verify the information that lives on the rest of the network.
To help you connect the dots a little more, bitcoin is a type of cryptocurrency with its own blockchain. There is only one bitcoin blockchain that is recognized by its network, but there are many blockchains out there that support other cryptocurrencies.
Why is this important?
Immutability – Any records on a blockchain is permanent. This is especially important because of how often we transact digitally. If you receive $10K from someone, you wouldn’t want them to be able to reverse that transaction, right?
Decentralization – Ever feel like banks are getting the best of us, especially when sending money overseas? Blockchain technology takes control away from traditionally powerful entities, creating a fair system for transacting between people.
Security – Currently, hacks are commonplace because of centralization, meaning record-keeping and control is managed by one entity. It is much more difficult to hack a system that is controlled by a network, each with its own copy of the blockchain. This is why bitcoin is pretty much impossible to hack!
To be fair, blockchain technology is much more intricate and varied than described here. But, the general idea is that by using code and cryptography, we can create autonomous networks where the participants get to interact on an even playing field.
We started with bitcoin, but blockchain technology can change how we keep medical data, how we share energy, or even how we vote!
By re-distributing control of data, we can regain authority over many aspects of our lives, not just the financial ones.