The 5 Minute Guide To Understanding Blockchain & Bitcoins

The 5 Minute Guide To Understanding Blockchain
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The problem with pretty much every other blockchain explainer is that it provides more detail than what most people require, using language that is full of jargon, which ends up leaving people more confused than when they started. So here's a Blockchain primer even your grand dad would understand.

Blockchain Is The Internet Of Money

Lets just jump right in, a Blockchain is a distributed database, also known as a distributed ledger. To make things easier to understand, let's call the ledger a record book instead. Furthermore, let's replace 'distributed' with 'being shared.' And to simplify matter further, just think of a 'block' as a line item in that shared record book.

So for the sake of convenience, we will now refer to Blockchain as a shared record book. Each new entry to this record book is a new line item.

What is Blockchain? A quick guide to crypto-currency.

So How Does Bitcoin Work

Technology is often only as complicated as salespeople (and con men) want it to sound. It is usually created by individuals no smarter than you and I, and it can be simplified when you break it down. That said, the contemporary version of this shared 'record book' is a technological triumph, one that might end up shaping our future in profound and in as yet many unimagined ways.

Taking the analogy forward, we are not talking about one record book stored in a central location shared by many. There are many thousands of copies of this record book, stored on computers across the world, home computers and business servers alike - hence the term 'decentralised.' This record book may be used to record many kinds of transactions, however, we will use sending and receiving money as the principal example, as it is the most common use for now.

When Jimmy wants to send money to Sally, a new line item is created listing that specific transaction. This line item then gets posted to hundreds of other computers that have a copy of the record. Those computers confirm that this deal is authorised, and ultimately they agree (or disagree) that everything about the transaction is above board before approving that line item. It must match up perfectly on every individual copy of the record, wherever it exists.

Think of it as if Jimmy and Sally had a few hundred mates stand around them and watch Jimmy hand over to Sally the money in question, and they all then agree that Jimmy actually handed Sally the money, as well as other aspects of the transaction, such as it is the correct amount.

How Is It Different From My Bank

The ingenuity of using this shared record book is that it requires no bank, no centrally owned corporation, and you don't have to place your trust in any financial institution. There is no need for a middleman of any type.

To clarify further the shared record book is not owned by any one individual or even by an organisation. It's owned by everyone that has a copy - which means that no individual entity that has a copy has full control over it (more on this soon). Additionally, this record book is what we call "immutable", or in layman's terms, it's irreversible. Every line entry made will exist indefinitely, for as long as the internet exists. So if Sally now wished to refund Jimmy the money, this would have to be a new line item sending the money back - it does not permit the crossing out of the original entry.

Because of these technology design decisions, fudging a line item in this shared record book is impossible. If someone, that has one or more copies of the record book on their computer, were dishonest and tried to change it, those changes would get rejected by the many computers used in the verification process - as the entry just wouldn't match up.

Where Is Your Money Stored

Here's one of the most challenging parts of this explanation to grasp: when we talk about digital currency such as Bitcoins, there's no repository of the coins anywhere - the line item in the record book is the money! Let us just pretend for a moment that the first entry in the book was made by someone named James - the founder of the new digital currency - who records "2 million coins now exist". James then hands the coins out to lots and lots of people, creating a new line item for each transaction. James sent 500 to Bill, 1000 to Sally, and so forth.

To receive those coins, Bill and Sally provide a wallet address to James, which is the equivalent of their bank details required to receive a direct deposit to their account. Bill and Sally each have a very long, very highly secure secret code which gives them ownership of the new line items which relate to their wallet. In this way, they alone can create a new line item with the coins that have received. Once James has established a new line item that says he has put 1000 coins in Sally's wallet, he can no longer control where those coins go from here - only Sally can. This is how millions of individuals can have a copy of the record, and not be able to add a new line item relating to any of the other 2 million coins that are presently documented within the shared record book.

What The Future Might Hold

At this point, you are probably wondering how this might have the potential to impact the world at all. This is after all just a way to verify the ownership of something digital, even if there are identical copies... right? If however, you think about the above long enough, it will perhaps dawn upon you how big of a deal this is. Before this time, a copy of something digital was identical to the original. For example, if an mp3 were to be used as currency, there would be no way to tell who's copy of "something.mp3" was the real one that I could exchange for goods and services, and which one was just a copy. Before the advent of this new technology, a genuinely digital coin was not feasible - anyone could just copy a digital currency over and over again a million times and become very wealthy indeed!

Beyond disrupting the financial world, the most mind-numbing, earth-rocking applications of this emerging technology may actually have nothing to do with money! As a case in point, we are already using this same shared record book technology for voting! In effect, the Bitcoins (which represent currency) have been replaced, with tokens that represent votes. Instead of spending a Bitcoin, you're casting your vote. The same benefits we see with digital coins apply to these votes, many different computers validate their authenticity and propriety, and the record book of the votes can never again be manipulated. It exists to be recounted with the same result, forever.

Beam Me Up Into The Future

I'm afraid you may too early to benefit from the future - this is still emerging technology that is as yet in its infancy. A vast majority of Blockchain projects announced have not yet come to fruition while the ones that have, might still seem a little embryonic and experimental just as many of the world's first websites did. However, there is little doubt that Blockchain based technologies will underpin a good chunk of the Internet that we use as early as the next 10 - 15 years. But, just like today's Internet, you shouldn't and wouldn't have to understand how the Blockchain enabled internet will work - it just will. Suffice to say that this new kind of web will gradually wriggle its way into every aspect of our lives and dismantle centralised businesses as they may exist today.

This post wasn't intended to cover every detail on Blockchain’s, be technically precise, or be exceptionally comprehensive. However, armed with this brief explanation, progressing to an in-depth grasp of Blockchain should prove a little easier than before. So that's it, you can now go and tell grandpa about Blockchain’s.

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