Blockchain Basics

The Tech

Beginner

By Matt Hussey

Learn

Jan 22, 2019

Blockchain is an online record of transactions backed by cryptography. It’s at the heart of currencies like Bitcoin and can be used to document financial transactions, the movement of goods or services and or exchanges in information.

What you will learn

What you will learn

What blockchain is, the problem it solves, and some of its awesome potential use cases

A blockchain is, very simply, an online record of transactions. They could be transactions for:

  • 💰Money
  • 🚚 The movement of goods
  • ↕️ Exchanges in information

We explore this idea more fully and explain why it has so much potential.

Diving deeper into what blockchain is

Taking the above definition and building on it, the blockchain is a growing set of records, bunched together into ‘blocks’ which are linked together using cryptography.

So we know it’s a way to keep records, but there are a lot of clever ideas built on top of that. The first is about how blockchain keeps  those records. Most people refer to this as the distributed ledger system or DLT.

In a distributed ledger, a record of every transaction is held in many places at the same time.

As a result, every time something in the blockchain is changed, everyone in the network is notified about - and has to agree on - changes.

This makes a blockchain fiendishly difficult to hack into and change records as it would require someone to change every single record at the exact same time.

Why everyone is so excited about blockchain

There are a number of key factors that make blockchain so exciting.

It's decentralised:

The internet today is mostly centralised. What does that mean? The vast majority of the services and sites you visit store and keep their data in a database. Your bank, Netflix, Google, you name it, they all operate a centralised system.

The blockchain meanwhile, is a decentralised system. That means that the data lives on the network, instead of in one place.

Why is that a good thing?

In the present centralised system there are a number of challenges.

🔓Security - If these centralised databases get hacked into, they can expose all the data at once. We've seen that happen more and more recently.

💵 Cost - Building centralised systems is often expensive as a company needs to provide all the digital capacity to make a system run smoothly.

📊Your data - In these centralised systems, your data is not your own, and is often monetised by the networks you give that data too.

🌫️Transparency - How information gets used, by whom and for what is a bit of a grey area today. The decentralised internet can change that!

Wasn't there anything like this before?

There have been decentralised systems on the internet. Remember Limewire and Napster? They were examples of decentralised services.

But they had a flaw: those services weren't very good at preventing duplicates of files. This is called the double spending problem .

The double-spending problem is all about preventing people from spending money or using assets twice on two different things.

Your bank solves that problem by checking with its centralised database to see if an asset has been spent or used more than once. The blockchain solves that without the need for a centralised database.

Who invented the blockchain?

The idea of the blockchain has been discussed among cryptographers since the early 90s. But it wasn't until the mysterious Satoshi Nakamoto came along that blockchain as we understand it today was created. Bitcoin is a system built on blockchain.

Find out more about who is Satoshi Nakamoto

Why else is it so special?

It's a trust less system

Today when we buy things online, there are a number of actors or points we have to trust. Whether it be a seller, a payment system, a bank or even a website. A blockchain doesn't require so much trust, allowing anyone to exchange goods or services without a third party.

No more middlemen

Many of today's networks are controlled by middlemen or agencies that often charge for the flow of information. In a blockchain there is no such control, which can lead to lower costs and speedier transactions.

Transparency

In a public blockchain like Bitcoin (there are private blockchains, but we'll explore that another time) anyone can see transactions, making it easier to track the flow of goods or services.

No one is in control

Because blockchain is a decentralised system, it means no one person or group can control the system, meaning things can only change via consensus.

Applications of blockchain

  • 🔌Energy - Person-to-person energy swapping. Potentially between borders.
  • ⛓️Supply Chains - Track all sorts shipments with complete transparency. Connecting records as items pass across many different handlers.
  • 📊 Open Data Marketplaces - Large open-source platforms to exchange big-data anonymously. Data is often described as the lifeblood of internet businesses.
  • 🏦 Governments - Blockchain technology could be used to increase speed and visibility in the public sector.
  • 🔧 Auditing & Regulating - Although not typically implemented, blockchain tech could be set up to be a looking glass into public transactions making regulatory roles significantly faster and easier.
  • ✔️ Insurance - Make insurance more transparent, with set conditions for payouts.
  • 🌎The Internet Of Things - Connecting smart devices to the Internet of Things and the sharing economy.

See more about IoT and blockchain with our article on: IOTA

The Future

Blockchain started with Bitcoin, but there are no limits to where this technology could go in future.

We've already seen new ideas, like Ethereum and Ripple both taking the idea of blockchain and building it in new directions.

Our site is full of these applications so take a look around.

By Matt Hussey

Learn

Jan 22, 2019

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2019 © Decrypt Media, Inc. All Rights Reserved.

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