What is Blockchain and how does it work- The beginner’s guide

Do you ever feel that someone is observing and hearing you, like multinational companies, government officials, or even banks?

This is a drag that a lot of folks face today. For example, a sketchy privacy scheme of Facebook concerning which it sold the data of its millions of users to various third-party companies in return for huge amounts of money. They were held accountable for this in 2017, but it’s still happening via many other behemoth companies hiding in plain sight.

Then came along cryptocurrency, its goal was to assist people in getting away from this privacy breach. It had the lovely anonymity of cash but wasn’t regulated by any government. Instead, it was made by a tiny bit of code and powered by the citizens of the internet, which meant that you could trust it.

There are now thousands of cryptocurrencies, like Ethereum, Litecoin, Ripple, and even Dogecoin. You can buy them on exchanges, or you can mine them. Dogecoin started in 2013 as a joke based on an internet meme and now is worth about half a billion dollars in market capitalization, which seems incredible to say the least.

The Problem, non-trustworthy centralized digital payments

Amazon, for instance, must check with your bank to ensure that you are eligible to pay the money you promised. The internet was built on the assumption that everyone was a reliable user. Essentially, a public servant or a university scientist. From the dawn of the internet up to now, this technology is created with this foundational set of inferences built in.

As our world was evolving toward the digital paradigm, concerns about the accuracy, security, and modifiability of digital records were raised. At this time, the use of third-party time-stamping services was the only option available that attempted to address these issues.

However, counting on time-stamping services that would be vulnerable to bribes or security breaches wasn’t ideal. Because it is imperative to maintain the integrity of digital records by ensuring they cannot be modified or backdated, otherwise digital record storage was not likely to be adopted.

The solution, Blockchain

In 1992 Haber and Stornetta worked on developing a technology that would tackle all the aforementioned problems by using computers and mathematics and named it Blockchain. It wasn’t until 2008 that the primarily distributed blockchain was created to be used as the underlying technology of Bitcoin, a digital currency. It was made by a person or group that goes by the name, Satoshi Nakamoto, who remains anonymous to date.

What’s this magical creature blockchain, then?

A common misconception is that the term bitcoin is interchangeable with blockchain. That however is not the case.

The blockchain facilitates secure and private transfer of digital currencies like Bitcoin, as well as posts these transactions to a public ledger to maintain data integrity in real-time.

Today most financial transactions are facilitated and recorded through private parties such as banks, Visa, MasterCard, and other financial institutions.

Blockchain foundation allows Bitcoin currency transactions to occur securely and privately while maintaining the accuracy of the transactions by posting a time-stamped unmodifiable record of the transaction to a public ledger without the utilization of a 3rd party.

Instead, it uses computers, mathematical algorithms, and cryptology to perform these functions, which permit an immediate connection between the Bitcoin users by removing the necessity for a 3rd party.

Imagine a list of transactions as a block and each block is being recorded on a running public ledger, it creates a chain of blocks, hence the term blockchain.

Where is this blockchain, and what does the term public ledger mean?

Every transaction between Bitcoin users is processed by a computer that has a Bitcoin processing software called Bitcoin client. This computer is connected to other computers via a web network. The technical term for such a computer that participates in a blockchain network is “node”.

The blockchain network has several nodes or computers that save all the recorded blocks of transactions, and as anyone can access this network, this is where the term decentralization comes from.

As this ledger is maintained for every transaction in real-time, it consumes a lot of resources and takes significant time. In return for maintaining this ledger via their computers, the user is rewarded with ‘cryptocurrency.

So if you’ve got a laptop with Bitcoin client software and keep it connected to the web and therefore the Bitcoin network, you’ll have the whole Bitcoin transaction ledger saved on your computer.

Even if your computer breaks, it will not affect the ledger because the same is being distributed on several other computers around the world at the same time. Therefore, the network cannot be disrupted at any specific point

Hashes

The blockchain process creates unique hashes for each transaction that function to make transactions secure and private. These hashes, time-stamps, and other unique identifiers are created for each transaction and recorded on the public ledger.

Today anyone can go and look at the Bitcoin public ledger and see all the transactions when you send or receive Bitcoin, the address of the user it was sent to, and where it was sent from. This is how you can identify your transaction- by the unique hash which is a randomly generated set of numbers and letters, or the IP addresses.

Future of Blockchain

There are several applications for blockchain technology in various industries. Blockchain technology creates transparency, validates and secures records, manages smart contracts which eliminate the middlemen or third parties.

A few examples of how blockchain smart contracts could be used include:

• Recording land record transactions or mortgages.
• Maintaining digital contracts and even medical records.
• Governing digital identities like passports or birth certificates.

The future holds uncertainty on both the value of cryptocurrency and its potential uses but one thing is certain, this is going to shape our lives.

“Bitcoin is a technological tour de force.” — Bill Gates, co-founder of Microsoft