Blockchain For Dummies

blockchain

The blockchain stores information across a network of personal computers, making them not just decentralized but distributed.  This means no central company or person owns the system. It is a decentralized ledger system. Everyone can use the system and help run it.  This is an important security feature as it is difficult for anybody to shut down the network or to corrupt it.

Bitcoin

The blockchain uses a form of maths which is called cryptography. Cryptography(the art of writing and solving codes) ensures that records can not be counterfeited or changed by anyone else.

The cryptography type Bitcoin uses is SHA-256(“Secure Hash Algorithm-256”). Actually, the miners secure new transactions on the ledger to prevent counterfeiting or double spending. Anything on the ledger is permanently time-stamped and can not be changed.

The rules of the ledger are in the core software(Bitcoin QT software) called a node. The Bitcoins Foundation is a non-profit organization. Chief Scientist Gavin Andresen wokred closely with Satoshi Nakamoto. Developers working for the Foundation maintain the Bticoin QT protocoll. Any major changes of the protocoll need to have community consensus before implemented.

Anyone can run a node on their computer. Any participant of the network has their very own copy and version of the ledger. Those are bundles of records submitted by others known as blocks and those blocks occur in a chronological chain. The more nodes the more decentralized. Anyone’s ledger communicates with the other ledgers and with the miners to make sure that everyone has an accurate copy of the ledger(see video at the end of this post) and that everybody follows the rules of the network.

blockchain for dummies

Bitcoin – the Pioneer

The first and most well-known cryptocurrency is Bitcoin. It is a form of digital cash.

You can send Bitcoins to anyone at any time.

Bitcoins digital ledger is called the blockchain.

It is tracking records of ownership over this digital cash and validating transactions.

Only one person can be the owner at a time and cash can not be spent twice.

Bitcoin uses the blockchain where there is no financial middleman or bank involved in sending or receiving money.

Instead, people from all over the world help move the digital money by validating other`s Bitcoin transactions. They do so with their personal computers and every time they solve a math problem they are rewarded with the creation of new coins. Bitcoin blocks are approx. solved every 10 minutes. The more miners there are the more complex the math problems. This process is called mining or minting.

The mining process of Bitcoins:

The miners have a software called nodes. On this software, they have an entire record of the ledger(of every single transaction that has ever happened on the network). Thes nodes have all the rules coded into it and communicate with each other to make sure that other miners and nodes are following all the rules.

The miners keep the ledger secure by confirming transactions and stamping them on this ledger. They use hash power to solve cryptographic math problems. As soon as a miner solves this problem(by randomly generating billions of alphanumeric hashes) a group of new transactions are bundled together and recorded on the ledger time-stamped as a block. These blocks are linked together with other blocks on a chain. The math problem is evolving from all the different blocks on the chain – this is where the name blockchain comes from. This way it is very secure because you can not forge coins or reverse transactions.

The blockchain is a tool that can verify transactions with minimal 3rd party involvements, furthermore, the names of buyers and sellers are never revealed. The blockchain has far more potential than just being used for sending Bitcoins. Basically, it can automate every kind of online transaction that requires a degree of trust.

Mining – Proof of Work

The evolution of Bitcoin mining:

At first, you could use your CPU of your computer. Then people started to use their graphic cards to generate more hash power – GPU- Then they used FPGA and ASICS(supercomputer – the only purpose is to mine Bitcoin). Now there are people with huge data centers used for mining Bitcoins.

Proof of Work: Once a miner has solved a hash he gets rewarded with Bitcoins.

Proof of Stake: Lets you mine coins based on the amount of Bitcoins you already have.

Mining has become very competitive and there are many factors to consider(hardware cost, electricity cost, network difficulty, price of the mined coin, mining pool fees…). Furthermore the bitcoin block rewards half every 4 years! You can check out details on Bitcoinblockhalf.com

Bitcoin is just the beginning…

Bitcoin is just the beginning of the evolution of blockchains. Different other so-called Altcoins – or Alternative coins already work on a better Blockchain technology. In the future blockchains that manage and verify online data could enable us to launch companies that are entirely run by algorithms(making self-driving cars safer, help us protect our online identities or even track the billions of devices on the internet of Things).

These innovations will change our lives forever and it is only just the beginning. A lot more is to come yet and I am excited about the new technologies and how we will use them in the future.

Note:

All coins have names and abbreviations. Here are a few examples:

Bitcoin= BTC

Ethereum = ETH

Ripple = XMR

and so on and so forth.

If you want to see all Altcoins available go to Coinmarketcap. Here you get all the info on the coins: the names, abbreviation, volume and much more. It is a great way to check out the coins further.

I found a cool video which explains what a hash is, what a block is, what a blockchain is and even what mining means:

You might also want to read more about the blockchain on Wikipedia.

You can see all Bitcoin transaction happen live on https://blockchain.info/