Many people say that nuclear fusion is probably easier to explain than what a blockchain is…but lets give it a go’.
The two words cryptocurrency and blockchain have been pretty much exclusively tied together since they were invented 10 years ago but now in 2022 the blockchain technology is starting to get used in almost every industry and not just with cryptocurrencies like Bitcoin.
So what is a blockchain and how come they’re said to be completely safe and secure from cheating and fraud?
Well, to start off with, a blockchain is a computer program and its sort of like a computerized ledger or set of digital bookkeeping books, or blocks, which are kept on dozens or thousands of computers around the world for security reasons.
A block in the ledger, gets filled up with transactions or records and then before that block can be accepted as legitimate and get attached to the next block in the chain, some advanced math called hashing, has to be applied to the block to make sure that all the numbers are right and nobody has tried to cheat the system.
In the case of crypto, these thousands of computers running 24 hours a day 7 days a week are called miners and when the fastest miner finds the correct math hash to validate the current block filled with transactions then they get a reward and the block is linked up or chained to the next block.
This is how more bitcoins are added to the supply of bitcoins which was predetermined to never be more thann 21 million in total.
We now have about 17 million out there and it’s said that it’ll be all over possibly around 2040.
Lets get back to the definition of blockchain now.
Now some terms that are thrown around to explain why blockchain is so amazing are these: decentralized, peer to peer, immutable, trustless, real time.
Lets talk about the term decentralized now
Now most companies store only one or a few copies on their central computer database and are called centralized computing..but the blockchain idea is an example of a decentralized computer system where dozens or maybe thousands of copies of the digital ledger are kept and constantly maintained.
So we started off with just that one simple blockchain which was called blockchain-generation one and now we have dozens of blockchains with more features in blockchain- generation 2 and are about to have hundreds of thousands of even more powerful blockchains in, you guessed it, blockchain-generation 3 where just about every industry will be able to use this blockchain technology software.
So the three technical words that you’ll always see in describing the 3 reasons why blockchains are so safe and secure are that they are de-centralized and peer to peer and its encrypted and transparent.
They also throw in the words immutable which means that once the transactions are placed into the blockchain they can’t ever be changed and the word peer to peer . They also say that since the blockchain is decentralized that it is usually real time or super fast and doesn’t need to get permissions from others in the system to verfify the blockchain.
Lets quickly define what a decentralized system is by first defining what we are familiar with a centralized system.
Most banks, large organizations or any company is said to keep their data centralized or in one or a few spots and only they can see it or change it.
Now the benefit of a blockchain database is that no one person or organization can control or change it because an exact copy of the whole database is constantly being shared with possibly hundreds or thousands of computers around the world.
If one change is made in New York it can be seen everywhere and a red flag goes up that alerts everybody that a crime or a mistake was made.
The whole point of decentralization was to take control of our money back from banks and make it easy to do bank type functions without the middleman.
Now the second big feature which gives blockchains its security is the use of the mathematical hash function which links each block to the other and ensures that even the slightest change in one number is impossible without the special has number being disrupted.
Basically to come up with this hash number involved what was called crypto miners which in the beginning was hundreds and thousands of plain people who had a computer in their basement 2r hours a day 7 days a week trying to run this advanced mathematical formula to verify that the blockchain was secure and for doing this they got rewarded with bitcoin.
They had to prove that they did work, so the term proof of work came up and now we have moved a system called proof of stake because the old way used too many computers around the world and wasted too much electricity and heat.
Bitcoin runs on whats called a public blockchain which means that everybody in the world can actually see a transaction that took place forever because it makes a permanent mark on the blockchain which means that you could go back and find where and when and usually who did some mistake or criminal activity.
Now it must be known that different crytp coins and tokens use different blockchain technologies so the anonymity and security can vary with them to a degree.
Also an important point to stress is that there are public blockchains like bitcoin where you can see transactions on the blockchain forever but there are also private or hybrid blockchains which is why companies are excited because they can use the benefit of the blockchain but keep their corporate or organizational information private.
So far we’re only talking about blockchains as they relate to cryptocurrency but there are an ever increasing list of technologies that will soon rely on using the blockchain technology including what are called smart contracts, and voting, medical records, real estate deeds, retail reward programs, Iot (internet of things) etc.
Every cryptocurrency relies on either their own blockchain or one from a major organization.
Each block is basically linked to the one in front of and behind the other and there are special numbers generated called hash numbers that uniquely identify each transaction and prevents anyone from modifying any other completed transaction.
Lastly lets stress the fact that the blockchain technology was written in a type of software called open source which was a movement to allow for the freedom of expression and computer code.
So anyone can access the software and change it which is why we started with just the blockchain that applied to bitcoin and then Ethereum created their own blockchain.
After this many crypto companies made their tokens and relied on Etheruems blockchain and then some of these same conmpanies then created their own blockchains to go along with their tokens and other interersts.
Lastly we hinted that blockchains are used and will be used for a lot more than just finance and the crypto world.
They are being used in NFTs and what are called smart contracts and they will be used in more industries like healthcare to keep track of patient records, voting systems, car parts inventories, collectible card groups and much more.
Just about anywhere that there is information to be stored or processed.
Now we’ll discuss the related terms like gas fees and mining crypto and smart contracts in the other sections.
(under construction Jan 13, 2022)