A Brief Introduction To Blockchain For Normal People

From SEDS-USA Wiki
Jump to navigation Jump to search

Crypto-what?

If you've attempted to dive into this mysterious thing called blockchain, you'd be forgiven for recoiling in horror at the sheer opaqueness of the technical jargon that's often used to frame it. So before we get into what a crytpocurrency is and how blockchain technology might change the world, let's discuss what blockchain happens to be.

In the simplest terms, a blockchain is a digital ledger of transactions, not unlike the ledgers we've been using for hundreds of years to record sales and purchases. The function of this digital ledger is, actually, pretty much identical to a normal ledger in that it records debits and credits between people. This is the core concept behind blockchain; the difference is who holds the ledger and who verifies the transactions.

With traditional transactions, a payment in one person to another involves some type of intermediary to facilitate the transaction. Suppose Rob wants to transfer �20 to Melanie. He can either give her cash in the proper execution of a �20 note, or he can use some type of banking app to transfer the amount of money directly to her bank-account. In both cases, a bank may be the intermediary verifying the transaction: Rob's funds are verified when he takes the money out of a cash machine, or they're verified by the app when he makes the digital transfer. The lender decides if the transaction is going ahead. The lender also holds the record of most transactions created by Rob, and is solely responsible for updating it whenever Rob pays someone or receives money into his account. Basically, the lender holds and controls the ledger, and everything flows through the bank.

That's a large amount of responsibility, so it's important that Rob feels he is able to trust his bank otherwise he would not risk his money with them. He must feel confident that the bank will not defraud him, won't lose his money, will never be robbed, and can not disappear overnight. This need for trust has underpinned almost every major behaviour and element of the monolithic finance industry, to the extent that even though it was discovered that banks were being irresponsible with our money during the financial crisis of 2008, the government (another intermediary) chose to bail them out instead of risk destroying the final fragments of trust by permitting them to collapse.

Blockchains operate differently in a single key respect: they are entirely decentralised. There is absolutely no central clearing house such as a bank, and there is no central ledger held by one entity. Instead, the ledger is distributed across a vast network of computers, called nodes, each of which holds a copy of the complete ledger on their respective hard drives. These nodes are connected to one another via a piece of software called a peer-to-peer (P2P) client, which synchronises data across the network of nodes and makes sure that everybody gets the same version of the ledger at any given time.

When a new transaction is entered into a blockchain, it is first encrypted using state-of-the-art cryptographic technology. Once encrypted, the transaction is converted to something called a block, which is basically the term used for an encrypted group of new transactions. That block is then sent (or broadcast) in to the network of computer nodes, where it really is verified by the nodes and, once verified, offered through the network in order that the block can be added to the finish of the ledger on everybody's computer, beneath the list of all previous blocks. nft artwork This is called the chain, hence the tech is referred to as a blockchai