Blockchain Explained: A Beginner’s Guide
Blockchain

Blockchain Explained: A Beginner’s Guide

Even though it’s been nearly a decade since the blockchain technology came into existence, it’s still a concept that’s scarcely understood by most people. Many are still considering it a technological du jour, while most can’t even seem to understand it beyond cryptocurrencies.

Well, in all fairness, blockchain is a fairly complex (okay, very complex, to be honest) concept. And most people try to define it the best way they can. So, oftentimes, it ends up like the story of the elephant and the blind men.

Be that as it may, there is a fairly simple way to grasp the concept of blockchain.

Now, think of the relationship Google shares with the internet. How does this relationship work?

The internet provides the platform or the technology upon which Google leverages to function, right? Great. Blockchain works in a similar fashion. It is the platform or the technology upon which cryptocurrencies like Ethereum and Bitcoin function. It’s what makes ICO’s, Bitcoin exchanges and even Bitcoin casinos possible.

But blockchain does not begin and end in bitcoins, it’s much more than that (more on that later).

Going from the known to the unknown, Bitcoin is simply a digital currency, or you can call it an asset too, while blockchain is the technology that powers it.

Our article today is dedicated to beginners primarily. So, trust that there won’t be any esoteric jargon here. In simple language, we will explain all you need to know about blockchain so you can understand it enough to explain to someone else.

Blockchain is the future and everyone should understand it now.

What Is Blockchain Technology?

Like we said, in simple terms.

A blockchain is literally a block linked by chains, okay? So, what happens is that we have information stored in blocks and then these blocks are linked up by chains. These blocks which contain digital information also contain something called a hash.

What’s a Hash?

A hash is like a set of different characters. Since we said the hash is contained in the blocks, where do you think the characters come from? Of course, they come from the information in the said block. Now, here’s how the hash thing works.

In a blockchain, blocks of digital information can be added to existing ones. Whenever a new block is added, this block will generate its new hash, but it will also contain the hash of the immediate last block to which it was added. Any alteration in any of the previous hashes in previous blocks will cause a disruption in the entire system.

So, yeah, you guessed right, the hashes ensure that the information in each block is well protected. You’re probably thinking, “but can’t they be altered?” Yes, they can. But to understand how that will pan out, there’s something else you must understand first.

This takes us to our next point of discussion.

Cryptography

We will explain with an illustration.

Now, for the blocks you own, let’s say it’s a block containing your medical records, for instance. Every new medical record you have registers as a new block. Each new block will also come with markers telling the time and date the record was created which cannot be changed. Plus, like we said, they will also come with their own hashes.

Now, because you alone (and your doctor) can have access to that block, you’re, therefore, the only ones that can tamper with the information in that block. And except that key is shared by either of you to a third party, it’s impossible for the information in that block to be shared and consequently altered.

We hope you get the idea?

This feature of blockchain that only allows you to edit your own part of blockchain is called cryptography.

Now to the question that’s probably on your mind now – what if someone with whom you shared your key decides to alter the information contained in your blocks?

You’re very correct to ask that. But, here’s another feature of blockchain that we haven’t mentioned yet – decentralization.

Unlike what is obtainable on the internet today, the entire data of blockchain isn’t found on a single computer. Every single user of the network of blockchain users has the entire data of blockchain, including the program itself, replicated in their computers.

How do we explain this?

It’s like having access to the very servers that host the data and program of Facebook such that if you need any information, you don’t have to request from the Facebook servers since you already have access to them right there on your own computer. That is, you and every other Facebook user.

However, you all can only alter the blocks you have to which you also have your individual keys.

So, back to the question. When you join the network, your computer automatically downloads the blocks. If someone somewhere tampers with some blocks, it won’t affect you or other users because the blockchain network will go with the majority. To cause an impacting effect, the hacker would have to infiltrate all the computers in the entire blockchain network. And that’s a tall order even for a hacker.

Had it been a centralized system, you know what would have happened, the alteration would affect the data received by every user in the network. A very scary prognosis, we must say.

Now that we know all this, maybe it’s time we take a break and unveil the personality of this faceless Satoshi, the unknown man behind the blockchain technology.

Who Is Satoshi Nakamoto?

No one knows, to be frank. He may be a single individual or even a group of individuals. And even though his name sounds maleish, he could even be a lady. Every speculation about the identity of Satoshi has been consistently debunked over the years, and this bit of information still remains a mystery.

Here’s what we do know though.

As the 20th century drew to a close, a movement referred to as the cypherpunks started to rethink the concepts of information, privacy, and power as it was then. In this group was Jacob Applebaum (Tor), Julian Assange (Wikileaks), and Bram Cohen (BitTorrent).

If you understand the way BitTorrent works, you’d understand the mindset of these guys. Two words that aptly describe them, though, are anarchists and libertarians. Hold these words close as we explain further.

With BitTorrent, Cohen developed a system very similar to the unborn blockchain as at that time. The system broke files into smaller bits so that people could easily download from each other in those smaller chunks. And they could also download from the source as well.

You see the similarities? No central controlling system.

Enter Satoshi.

Satoshi being of this peculiar mindset as well would easily have seen the blockchain technology as the perfect solution to tackling the way information, privacy, and power were controlled. And so, he designed blockchain, a simple yet elegant design that allowed currencies which were once centrally managed and created to be decentralized.

No government. No banks.

This was a system that resonated more with the spirit of the cypherpunks and Satoshi of course.

This system boasts a lot of advantages as you can already deduce, but before we get to that, let’s understand how this blockchain thing works.

How Blockchain Works?

While the internet helps to disseminate information from a source to anyone around the world with an internet access, blockchain does same but with value this time. That is, with blockchain, a person can send value to another blockchain user anywhere in the world.

However, you’ll only be able to access blocks you own with your own private key, cryptographically created. (Remember what we said about cryptography, right?)

If you transfer this key to someone else, it means that you have transferred whatever value was stored in that block over to someone else. Value could be anything at all. But for the sake of this article, let’s use a more familiar example – bitcoins.

So, you can have blocks that contain digital currencies of financial value. And these blocks come with their own keys. Once the keys are transferred, a transfer is recorded and you don’t the need the authority of a bank to make it valid.

So, this does two things for us.

One, it speeds up the process of transfer because transfer is very fast. Two, it makes the transaction secure. This is because only someone with the key can access the block, hence, any alteration made to any block that isn’t verified by the corresponding key is automatically rejected.

Can keys be stolen? Yes. But keeping them safe is relatively inexpensive, so, it’s still a win-win.

In essence, the blockchain based transactions are faster, more secure, and more reliable option than traditional banking.

And, it isn’t just causing a disruption in the banking system alone, the blockchain technology is and will be causing disruptions in many more industries.

But, before we get to that, here’s why blockchain is uniquely suited to cause these disruptions.

Characteristics Of Blockchain

It’s decentralized: There is no singular controlling system for blockchain, neither does it require the validation of any institution – governmental or financial.

Universal network: The integrity of the network is by consensus which makes the platform very scalable.

Accessibility: Anyone at all can access the code for the blockchain technology and use it.

Security: Since information is replicated among thousands of computers rather than one single system, the information contained in each block is pretty secure.

If you didn’t know, blockchains are already being used in quite a few industries around the globe.

It’s true that many bank owners felt intimidated by the system and quite a few even spoke out against it. However, the banking industry isn’t left out of the disruptions either. There are quite a number of banks currently running a department dedicated to cryptocurrencies. And some are even considering building their own blockchain.

Below are fields where the blockchain technology is currently being applied.

Cryptocurrencies: Blockchain is like a transparent public ledger for cryptocurrencies that ensures that a particular currency isn’t spent twice (the process for this is a story for another day, but it’s called Bitcoin mining. You could look that up). Every cryptocurrency uses blockchain technology to ensure security, although they each have their own specific rules.

Smart Contracts: By creating a huge database of applications, blockchain technology can help to create contracts that are intelligent.

Blockchain has the ability to store all kinds of digital information, including code. It’s possible to program this code to automatically be executed when certain parties enter their keys, signifying an agreement to a contract.

Let’s give an illustration.

Let’s say you have a smart thermostat and it translates energy usage to a smart grid. Once a pre-agreed water hour level is reached, another blockchain can then transfer value to your electric company from your account.

So, you see the reading and billing have now been more efficiently managed.

In the future, blockchain is expected to cause yet more disruptions. Some industries and sectors that should expect this disruption include:

Banking and finance: The finance industry is the largest sector in any market by market capitalization. If, even a small part of this industry, is replaced by blockchain technology, processes can be a lot faster, more efficient, and more secure.

Healthcare: It will provide a much safer way to store as well as protect medical records of patients.

Voting systems: Blockchain will definitely reduce voting day drama to a bare minimum if not totally eliminate it altogether. Just like you have it with Bitcoin, with blockchain technology, it can be ensured that no voter casts their vote more than once, location regardless.

E-commerce: With the middleman eliminated, the processing of payment for items purchased online will ultimately cost less.

Education: With cryptocurrency, blockchain, and virtual reality, we should witness the rise of more global classrooms in the near future.

It’s yet too early to tell completely the effects or repercussions of using the blockchain technology. The big guys, however (IBM and Microsoft, for example), seem to be counting on the technology and are investing huge amounts in it. This move might motivate other companies to join the train soon.

But altogether, it’s still a close monitoring for the blockchain technology. And even though it seems to be growing in strength with each passing year since its invention, only the future will tell if this technology will really completely revolutionize everything like some predict.

Look at this infographic by Bitfortune about the major distruptions in the blockchain industry:

Blockchain Explained: A Beginner’s Guide

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Anshul Mohan

Anshul Mohan

CEO, Editor in Chief
CEO at CoinFrenzy, Mechanical Engineer, Blockchain enthusiast, Writer.