Blockchain for dummies is the first of a recurring series of articles aimed at people who are willing to learn more about cryptocurrency and blockchain technology.
Maybe you got to know about Bitcoin at the end of 2017 when the price went up dramatically and everyone wanted in. Or now that the prices have dropped, it seems more interesting to invest a bit of your savings in crypto coins. Possibly you don’t feel confident enough about investing in a technology you don’t know much about and want to learn more about it first. If that’s the case, then this article is meant for you.
Blockchain for dummies getting technical
Let’s start the blockchain for dummies tutorial explaining what a blockchain is exactly. Very simply, a blockchain is a spreadsheet (Like Excel, but with only 1 column) in which data is stored. In normal databases, one entity owns the database and decides who can see the stored information, who can edit and make changes. In blockchain technology, nobody is the owner of the blockchain. And nobody can make changes or delete anything; every input in a blockchain is permanent.
All the data is stored in blocks. They also contain a hash. A hash is a collection of characters gathered from the information stored on the block. The next block in the chain will also have the hash of the previous block stored on it. This is why it’s called a blockchain. The hashes of the blocks connect all the blocks together. Now, we already told you that you can’t make changes to the blocks. But what if someone would try to change it anyways? It would automatically change the hash of that block as well. The following block, where the original hash was stored, will notice the difference. This will break the chain, as it can no longer be trusted.
Okay, so changing the block will change the hash. Therefore, the next block will notice that someone changed it. But what if someone doesn’t only change the data on the block, but manages to change the hash as well? The next block on the chain on their computer might not notice the block has been tampered with. But the blockchain is not only stored on their computer. Everyone taking part in the network of a blockchain has a copy of it downloaded on their computer. If a malicious person or entity was capable of changing the data on a block and its hash as well, the rest of the network will still have records of the normal, non tampered, blockchain. The majority will consider the original blockchain to be the valid one, and the tampered one will be discarded. It is important to note that nobody is in charge here. It is not 1 entity deciding what is valid and what isn’t. The power is completely decentralized.
What can you do with a blockchain?
Bitcoin, the first cryptocurrency to use blockchain technology, is used to send money from one user to another without the use of a middleman. No longer are banks or other financial institutions needed, as one can place transactions on the blockchain, and everyone involved can see and verify the validity of the transaction. Since there is no middleman, the costs are much lower, making it interesting to use for small transactions as well. Some banks are not too happy about this development and start warning people about the risks of using cryptocurrencies and blockchains. Other see the possibilities it has to offer and is actually implementing similar technologies themselves.
After the arrival of Bitcoin, others quickly saw the more potential use for blockchain technology. By adding smart contracts, you can add conditions to the transaction. For example, you can create a smart contract that triggers at a certain time. This way, rent gets paid automatically on a set date of the month. Another option is to add a condition where as soon as certain terms of an agreement are met, the transaction will take place. Now, nobody has to worry that they won’t get paid after having done their job. These smart contracts are added to the network, so everyone connected to this blockchain can see the agreement and confirm its validity.
The possibilities to implement blockchain technology seem limitless. Multinationals can use their own blockchain to improve internal financial processes. Governmental institutions are looking into implementing blockchain technology to improve their transparency to the public. For speculative purposes, it might be a bit late to start investing in Bitcoin, but blockchain technology is still developing itself at a fast pace. The future for cryptocurrencies, digital money, and blockchains is looking very promising. Now that you have read the blockchain for dummies tutorial, you might want to learn more about all this. Keep an eye out for our next tutorials and before you know it, you’ll be a crypto expert!