It’s impossible to talk about cryptocurrencies without talking about blockchain, and that is what we are going to talk about in this article.
Let’s start off by making a quite obvious clarification just in case, blockchains and cryptocurrencies are not the same thing. Just as the internet is the platform upon which blockchains are built, blockchain on his part is the framework through which cryptocurrencies are created . Imagine something similar to Matrioska/Russian dolls you have a layer inside a layer inside a layer etc.That’s pretty neat and and all, but what it a blockchain exactly? And how does it work?
The short definition would be that of a peer to peer, ever growing collection of records, basically a list containing information , each element of this collection is linked to the rest in a progressive fashion with the usage of cryptography. Immutable and transparent by design.
As usual to get some perspective on the concept we will start off with a little story.
In the early 90s two very smart cryptographers that went by the name of Stuart Haber and W. Scott Stornetta came up with the idea to create a solution that would make digital documents impervious to tampering and corruption by making sure that time-stamps were impossible to be backdated. The ancient and arcane science of cryptography was a way to make that happen and with the implementation of concepts such as Merkle Trees into the design there were able to seal the deal, making their digital document stamping solution practical and intuitive to use (a concept that allows the bundling up of a multitude of documents in one single block, if you think of a block as something like a folder).
But alas, apparently times weren’t ready for such innovations, because the idea remained just an idea and the paper that the two gentlemen published was sealed off into the obscure recesses of an office building somewhere in Morristown, New Jersey.
Time passed, the young internet became a semi autonomous entity of unfathomable size and reach.
We survived a bunch of economic implosions, wars and various calamities all over the globe.
But somebody somewhere did not forget about the idea of Blockchain. After all, everything begins with an idea. Sometimes the timing is just not right, but when it comes… well, it cannot be stopped.
This somebody was none other (or others) than the mysterious Mr. Satoshi Nakamoto, who took the idea that was maybe too far ahead of its time and cleaned the dust off this diamond in the dirt, revealing it’s shiny brilliance, rolled up his sleeves and began getting to work.
We all know too well how it went.
A market that reached almost 800 billion dollars at it’s peak.
A revolutionary product that boldly antagonized the monetary monopoly of banks and governments and changed the financial world forever, in the meanwhile creating a whole new generation of young rich people.
Bitcoin, obviously.
But how does it work?
The idea is as incredibly ingenious as it is very simple, like all good things in life. As we already stated blockchain is a peer to peer platform, that is used to record transactions. These transactions are fastened together into the aforementioned “blocks” that are connected onto each other into a continuous chain, a ledger. This ledger exists on the blockchain network, composed by hundreds of thousands of independent entities/other computers, namely “nodes”, each one of these nodes has a copy of the ledger that is being updated every second (or minute, it depends) in real time and it has the sacred task of verifying and then either accepting or rejecting transactions and this is where things get interesting. Just to clarify a transaction can be any addition (code/currency xfer/data etc) on the blockchain.
First of all, the ledger is accessible by anyone at any time and if you wish you can go back in time and see the data of the first transaction written onto the first block. This is the first key principle of blockchain technology: Transparency.
Okay, but how can you be sure that the information on the ledger, especially dating years back is genuine? Well, this is why we have a network of computers instead of a computer and this is why we have a fascinating little thing named the Consensus Mechanism, there are various types of consensus mechanism, but the main goal is to make sure that each one of the nodes processing transactions are on the same page when it comes to the verification result. Only when consensus is met the information is then written onto the blockchain, and once it’s there it cannot be changed, because it would mean overpowering the entire network of thousands upon thousands of nodes which is pretty impossible. The second principle of blockchain is Immutability, the data is chiselled into digital stone and can never be manipulated, if that happens, know for sure, the End Times are here.
From here, we can now talk about the third and most important concept that makes blockchain so special and almost idealistic: Decentralisation.
There is no central entity that has authority on what happens on the blockchain. No government, no institution, no middle man. The power is in the hands of everybody and nobody at the same time and this is the only way to make sure that the network is secure, immutable and transparent.
We really wanted to keep the number three when talking about the principles of blockchain, for verbal aesthetics, but there is another core aspect behind the blockchain philosophy:
Anonymity.
Extremely important.
Of course you can look at the ledger, see the transactions, the dates, the amounts etc. But you won’t see names, and you shouldn’t frankly, you will only see long gibberish composed by letters and numbers, each string of those is the public key of somebody, we don’t know and will likely never know. Fantastic. Think of this as a digital footprint verifying the existence of a transaction with sender/recipient information without compromising their personal data.
Hopefully this article has made blockchain a little more approachable for you and gave you a good general understanding, dear reader, about what this thing you keep hearing about on the news and the internet is. You arrived just in time, big things are coming.
