Crypto 101: Blockchain

Blockchain? More like No-Idea-Chain! (Am I right!?)

For ages, I avoided looking at Blockchain because it all sounds pretty complicated and let's be honest...dull!

But after spending some looking at it I have wrapped my head around it, and come up with ways for even my simple brain to understand it.

So let's get into it...

What is Blockchain?

To boil it down, Blockchain is the technology that things like Cryptocurrencies use to keep a record of all their transactions.

That's it!

You can do other fancy things with the technology and there are different types blah, blah, blah...but if you just want to know what it is, that's it.

If you are interested in understanding it more I'm now going to include the boring part on how it works, feel free to skip past this section.

<-------Start of boring part------->

How does Blockchain work?

As silly as it sounds Blockchain is just a chain of blocks of data in chronological order:

Every time a new transaction happens a new block is added to the end of the chain.

Just before that block is added it needs to be checked to make sure nothing dodgy is happening - Like people giving themselves a million Bitcoin.

And the way Blockchain checks for fraud is by having 10,000's of people holding a copy of all the transactions.

It's like me saying: " I sent an email to Bob"

But Bob, Jack, Jill and Becky also have a record of all my emails, so go "Get out of here you lying ?? "

This diagram explains it in a more professional way:

Note: The part in the bottom right where people receive rewards, is what's called mining?? Sadly, there's no pickaxe, no virtual mountain where the 7 virtual Dwarfs, are singing virtual "heigh-ho".

It's just computers recording transactions and getting rewarded for using their computing power ??

<-------End of boring part------->

Why does Crypto use blockchain?

In the past, people have tried to create digital currencies but have failed because of trust.

For example, let's say I created a DanCoin??. If I kept all the records of transactions private, I could just give myself a million DanCoin?? whenever I wanted.

With Blockchain, no one person is in charge, so that removes the trust issue.

With Blockchain, If I wanted to forge the records and give myself a million Bitcoin in my wallet, I would have to change every single version of the records on every computer, all over the world.

Or... if you like my email example: I would need to change the records on Bob, Jack, Jill and Becky's computers all at the same time.

Note: Now Blockchain is not completely transparent, you can see transactions between different wallets, but that wallet can be anonymous. So you're not revealing all of your financial details to the world ??

So basically, imagine it like having everyone's bank transactions available on the internet for everyone to see but, no one can tell it's yours.

After banging on about it being all public you can create a Private Blockchain so it's not publically visible and the whole chain is controlled by one organisation. This could be used for a business's internal processing but, without the public record, you have the trust issue again, stopping it from being used commercially.

Other uses for Blockchain technology

Blockchain technology has become synonymous with Cryptocurrency, but it could be used for many other things in the future. Currently, things like NFTs are brought and sold using Blockchain but there are many more important things it could be used for, like voting.

Imagine no more going to a polling booth, secretly submitting your vote and it going off to be counted in secret. In theory, you could vote on your phone with a unique ID and that vote would immediately be visible to the world - removing any chance of fraud because you could literally go and count up the votes yourself.

So why don't we use Blockchain for everything?

A pretty big reason is to do with computing power ?

Even though we hear stories of huge computing rigs in Siberia, built specifically to do the checking of transactions through 'mining', it still is nowhere near enough to handle all transactions.

Visa for instance handles 1,700 transactions a second. Blockchain can currently handle less than 5. This would mean you could be waiting several minutes (or hours) to pay for your food in the supermarket while the transaction is checked and processed.

Then there's regulation, this whole world is a bit of the Wild West and many governments don't understand Blockchain, let alone how to regulate it. The good thing is by the end of this article you'll be more clued up than 90% of Politicians ??

There's also a loss of control for businesses, like Visa (sorry for picking on Visa!). To start using Blockchain they either have to use one of the Blockchains already in existence, like Etherium*, or create their own. We already know Blockchain needs a lot of computing power so creating their own would be expensive but using one in existence means they have no control over it and is subjected to external influences.

*Note: You may have heard of Etherium as a Cryptocurrency. But Etherium is actually the name of the Blockchain technology. Ether is the Cryptocurrency built on top ??

For example, Kosovo recently banned crypto mining because of an energy crisis. This has meant the speed at which transactions are being processed globally has slowed because there are fewer computers doing the processing.

It's currently just too volatile and slow for an organisation like Visa to rely on.

In summary

See, wasn't so bad!

Just remember Blockchain is the way transactions are recorded, and Cryptocurrencies just use them.

Now you have this foundational knowledge we can add the other stuff around Blockchain and Crypto on top - which is where it gets really interesting!