Category: CRYPTO BUSINESS
This is a question many people have but are afraid to ask. Everyone talks about the blockchain, how it is changing the world, and how it is literally the future of currency itself. But ask the average Bitcoin Booster to explain how the blockchain works, even in basic terms, and you might be surprised how few can really explain it.
And that’s not that odd. I mean think about it. You use credit cards all the time, the convenience of credit cards was very clear on the eve of that specific revolution a half century ago. But ask someone to really explain how the complicated network of merchants and processors and banks and, well, prepare from some blank states. Oftentimes one can recognize the value of a change without really understanding how it works. They see the results, how those results are changing the way things currently work, and they go from there. Connecting the dots rarely requires a truly in-depth understanding.
But you’re better than that. You might see the results of the blockchain revolution but to better capitalize on the changes, you really ought to understand how the technology works - if only to better place your bets and your investments.
So, what is the blockchain?
The blockchain is, at its foundation, a kind of distributed database. It allows for the distributed storage and the continued updating of a data file. The permissions to edit this file are shared with all the different nodes that exist.
The nodes are each individual Bitcoin clients. And each client has the same rights, it can edit and make changes to the file and submit those files to all the other clients in order that they change their own copies as well. But this is reciprocal, it must commit the changes made by other clients as well.
This file that is continuously edited is called the ‘ledger’ and in the context of cryptocurrency the ledger is used to keep track of who owns what. It is essentially a list of ownerships that is shared and continuously updated by everyone on the network.
How does it know who is who?
Cryptocurrencies are primarily concerned with security, privacy, and decentralization. As such the names that are recorded on the ledger are not real names! They are what are called public keys. Every crypto wallet has a public key that is associated with its current value. That is to say, on the ledger there is the public key and, next to it, the number of coins contained in the wallet.
Whenever a transfer is made, the client writes this change. Then it is bundled into a block and the block is sent down the chain of nodes and all of them update their ledges. This is why its called the blockchain. Because it is a chain of, well, blocks. The block contains the transactions and changes made to the ledger.
All the nodes write all the changes but to make a change you need more than the private key. To make a transfer you need the private key that gives you access to the wallet (whereas the public key just identifies it). Think of the public key as a sign on a door and the private key as the literal key.
What are the benefits of all this?
As you can see the blockchain is a relatively complicated system!
It required a lot of work to develop and still requires a considerable amount to really understand.
We have only scratched the surface with this article.
But the benefits of the blockchain are clear. It totally decentralizes the control of currency and creates a very democratic system, whereas with fiat currency, the system is very centralized and depends on the whim of a government.
The distributed aspect also allows for cross border transactions with never-before-seen ease.
There is no practical difference between a user in South Korea and one in France.
The use of fiat currency online has existed since shortly after the creation of the internet. And while this sped up the transaction speed, it was still fiat, still controlled by the government, and still constrained by borders and politics.
The blockchain is truly creating an internet currency – a currency free of those problems, and that will give us hitherto unthinkable freedom.