[TECH] What is blockchain?

First, before talking about blockchain, the idea of cryptocurrency of bitcoin will need to be familiarised.

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What is Cryptocurrency?

"...they are just limited entries in a database no one can change without fulfilling specific conditions" - Blockgeeks

If we apply what this statement means to real currency, specific conditions refer to user authentication, money can only be drawn from it when the user is authenticated.

"Money is all about a verified entry in some kind of database of accounts, balances, and transactions." - Blockgeeks

Cryptocurrency is basically the digital version of real life currency. It is a medium of exchange, being stored in a large transactions database called blockchain, making use of encryption techniques to confirm different transactions. One very popular example recently is Bitcoin.

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How the coins are being mined and how transactions happen

Ref: https://blockgeeks.com/guides/what-is-blockchain-technology/

A cryptocurrency like Bitcoin consists of a network of peers. Every peer has a record of the complete history of all transactions and thus of the balance of every account.

A transaction is a command “Mickey gives X Bitcoin to Minnie“ and is signed by Mickey‘s private key. This involves the concept of public key cryptography, which means the action is being encrypted by a public key and a private key at the same time. Only person with the private key which in this case Mickey can decrypt the command and permit the command to be run. After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is basic p2p-technology.

The whole network will know about this transaction, but it is not yet confirmed. Confirmation is critical in cryptocurrency because the medium such as bitcoin is not physical but virtually exists in the network.

As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.

Only miners have the right to confirm transactions. This is their job in a cryptocurrency-network. They take transactions, confirm them and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain.

For this job, the miners get rewarded with a token of the cryptocurrency, for example with Bitcoins.

Reference from: https://blockgeeks.com/guides/what-is-cryptocurrency/

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So, the definition of blockchain and bitcoin are becoming more and more obvious...

What is a blockchain?

"A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography" - Wikipedia

With a blockchain, many people can write entries into a record of information, and a community of users can control how the record of information is amended and updated. Think of wikipedia as an example, community of people contribute to updating information on wikipedia, and the entries will be confirmed by wikipedia staff to see whether the content is sensible. Blockchain is exactly the same thing - community of people having transactions online and the transactions need to be confirmed by the data miners. These historical transactions record will then be stored in a blockchain database.

To be exact, blockchain is a centralised database to store transactions history of a community of people. Every node in the network is coming to the same conclusion, each updating the record independently, with the most popular record becoming the official record.

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Now, we are clear about what is cryptocurrency and blockchain. So what exactly does blockchain technology involves?

What does blockchain technology involves?

Surprisingly, blockchain technology is not a complete new thing. It is basically combination of old existing computing concepts that we are all familiar about.

1. Private Key Cryptography

2. Peer-to-peer network

3. Blockchain Protocol - Protocol that dertermine how each user interact with the blockchain

Ref: https://www.coindesk.com/information/what-is-blockchain-technology/

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Case studies - Bitcoins

You should be now able to recognise bitcoin as a kind of crytocurrency.

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof.

Bitcoin allows people to trade digitally online, like dollars or pounds or yuan.

Bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralised. No single institution controls the bitcoin network which large bank can’t control our money.

An important idea to be noticed is that unlike conventional dollars, when the government is in dept, the bank can simply print more money and devalue the currency to cover the debt, bitcoins are not owned by any organisation and no one individual can control it. Therefore, Bitcoins are created digitally and are 'mined' by computing. Gold rush is happening again, but this time not in California but in the internet.

Why use bitcoin?

1. It is decentralised - which means no central organisation has control over it; it is a good thing because we do not need to worry about bank printing lots of money and devaluing the currency or meltdown of the economy

2. It is easy to set up - Unlike modern bank where you will need to set up a bank account and provide your own information and different proof, you just need to register a bitcoin address anonymously. The side effect of this is that everyone get the access your address and see the bitcoins you are holding, but they will not know that the bitcoins belong to you. To register a bitcoin address, you don't need to provide your personal details at all.

But, if bitcoin is virtual currency, how can we actually store it?

How to store bitcoin?

1. Desktop wallet - wallet that comes along with your bitcoin client

2. Mobile wallet - an apps that contains the private key for your bitcoin address and you can pay for things directly from your phone

3. Online wallets - web-based wallets that stored your private key online

4. Hardware wallets - they can be simply a USB

5. Paper wallet - these are the cheapest option and you will be given a paper with two QR codes on it - one is the public key for people to send money to you and the other is the private key when you need to use the bitcoin

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I briefly talked through what is cryptocurrency and blockchain and look into bitcoin specifically. More bitcoin activities such as bitcoin mining will be investigated in the future.

#blockchain #bitcoin