Q: What even is Blockchain?


  • Community Manager

    What even is Blockchain?

    A quick Google search returns this:

    0_1542096219416_4374c0e6-1e58-49d3-a3d7-a6235ec2e094-image.png
    Figure 1. Google's definition

    As a beginner, how would you respond the next time you're asked that question? It's almost 2019 (?!) and I hope we all have a good answer to that (JK, no pressure), if not—

    That's what this post aims to help with!
     


     
    "Definition of Blockchain: A digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly"

    Another term consistently used in conjunction with blockchain, which is also an important aspect of the technology (with which brings huge societal implications), is that it's decentralised.

    Some questions for us to probe deeper:

    • What is a "digital ledger"?
    • What "transactions" are we referring to here?
    • What's the relationship between bitcoin and blockchain?
    • What is a cryptocurrency?
    • What it entails when "transactions" are recorded "chronologically & publicly"?
    • What does "decentralised" mean, and what makes it so important?

     

    What is a digital ledger?

    The digital version of a ledger, which "is a book in which items are regularly recorded, esp. business activities and money received or paid". [1]

    What transactions are we talking about here?

    If you imagine the blockchain as a ledger book, a transaction refers to an entry on a page of the ledger. Each 'page' on this 'ledger' can be likened to each block on the blockchain (to be elaborated further below).

    What's the relationship between bitcoin and blockchain?

    • Bitcoin was invented and then released in 2009 by an unknown person or group of people known as Satoshi Nakamoto
    • Bitcoin was the first virtual currency
    • The technology behind bitcoin is known as blockchain—which is now being used and applied beyond the creation and supporting of a currency; it has been developed into countless variations / extensions

    What's a cryptocurrency?

    Cryptocurrency is a digital currency formed on the basis of "cryptography".

    What it entails when "transactions" are recorded "chronologically & publicly?"

    Chronological:

    • In a bitcoin blockchain, "bitcoin transactions are bundled up into “blocks” of information and recorded permanently in a ledger.
    • Each block contains the transaction information, as well as a timestamp, and connects to the previous block (hence the name: block-chain)" [2]

    Public:

    • The information that is held on a blockchain exists as a
      shared database. This database is not stored in any single location, but shared by a network of thousands of computers around the world (Fun fact as at May 2017: 7,000 for Bitcoin; 25,000 for Ethereum!)
    • Another way of interpreting the above is that blockchain is a distributed ledger
    • "Whenever someone makes a transaction, it is broadcasted to [that] network, and the computers run complex algorithms to determine if the transaction is valid. If it is, they add it to the record of transactions, linking it to the previous transaction." [3]

    "What does "decentralised" mean, and what makes it so important?"

    • What's described above entails that the network is not managed by a central party, e.g. a government body or a large organisation.
    • "Since thousands of computers are involved in validating transactions, to hack the network you need to break into not one computer, but thousands of computers spread throughout the world: much harder." [4]
    • Decentralized platforms allow for more privacy. "Information doesn’t have to go through one point, and can (or could have) instead pass(ed) through a variety of points, it’s much more difficult to track information across the network." [5]
    • An important implication of the above is that it does not rely on any central authority that could be corrupted or mismanaged. "Verification is performed by consensus rather than by individual companies, and transactions cannot be interfered with or modified once made." "This democratization of the financial services markets is a phenomenon that is returning the power to the people" [6]

    Hmm, can blockchains be hacked?
    Yes—even though they are powerful, and even though they are far more difficult to hack compared to a traditional database. [Read more here!]

    Hope this helps!

    Feel free to voice out any concerns / questions. Go ahead and point out any aspect which you believe could be better explained!

    🙋 Volunteers anyone? Explain in simple terms:

    What is the relationship between blockchain and cryptocurrency?


  • Community Manager

    One major confusion that occurs quite frequently is the use of the terms blockchain and cryptocurrency interchangeably.
    They are NOT the same, rather they are related concepts.

    Essentially, cryptocurrency is one of the many applications of blockchain, which is the underlying technology.
    Cryptocurrencies derive their value from the underlying blockchain technology by acting as a medium of exchange.
    [Read more here]


 

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