A Beginner’s Guide to Understanding the Blockchain (Part 1: Introduction to Blockchain Technology)
In the spirit of understanding what you (want to) invest in before doing so, Fincade will now attempt to help you better understand what blockchains really are about in a very beginner-friendly way.
Demystifying the Blockchain
To help you better understand what a blockchain really is all about, think of the blockchain as a giant and shared Google Excel Sheet (think of all the collaborative projects that you have worked on in Google Sheets!) that everyone and anyone can gain read-access to.
This means that anyone and everyone on the Internet can view all the transactions recorded on this sheet because it has no access requirements for read-access.
For edit-access to the document (if you want to add transactions onto the document, and not just view), however, a more complicated process would be required. Because everyone and anyone can gain access to this document, it will not be safe for all of them to get edit-access without a proper system in place to discourage malicious actors.
If this were the case, anyone can just edit the document in their favor for personal gain, and/or to cause chaos and confusion, since any given change will be reflected across all the computers that are connected to this document.
So how do we foster trust within a system where users can’t trust each other because of how accessible it is to anyone and everyone?
Any transaction that is added onto the Google sheet has to be agreed upon by all the users in the network (on the document) first.
In other words, the whole network of users must first come to a consensus, before any transactions can be added to the document. Only after everyone on the network has first checked through all the proposed new transactions, can they be added to the document, if approved by everyone of course.
So now you may be wondering — how on earth do we do this without a central, or intermediary, party to negotiate and liaise between users in the network?
This is done via something called a consensus mechanism, that all blockchains will have.
This ‘consensus mechanism’ is something that Fincade will go through in-depth in the next article (you can check it out here), so having a general understanding of this concept will suffice for now: that there is a mechanism in-built into all blockchains to help their network of users verify, and come to consensus (through voting) on, the new transactions being added onto the document.
Characteristics of Blockchains
From all the above, we realise that in a blockchain, there is no need for a central entity to step in at all, because blockchains are self-sufficient in their functionalities, thanks in large part to consensus mechanisms.
We also realise that there is no one singular party that can control this Google sheet or censor it, because no one will be able to delete this shared document off every single computer that has access to this sheet — there will simply be too many to track.
Let’s say someone successfully deletes this excel sheet from 1000 computers, there will be 1000 more that still have access to it! It is practically impossible to delete this document, control this document in the way you want to, or stop people from getting access to it in one way or another.
Therefore, blockchains can be construed as decentralized or distributed ledgers, where power is distributed and diffused across various entities, and is not focused in the hands of a few.
Concomitantly, they also become censor-proof.
The Google Sheet ensures that no one can tamper with the transaction histories without others knowing, because once again — everyone having access to this same document will mean full transparency.
If someone changes a certain number on the sheet, everyone will be able to see. If that change is in the spirit of maliciousness, everyone else can reject that change by doing a simple control-Z on it.
Extrapolated to the idea of a blockchain, this reveals two key characteristics of the blockchain: tamper-evidence and immutability (you can’t change things on it as and when you please because other people will know, and they will likely reject it).
From all the above — we learn that most blockchains will have 5 key properties that prevent them from being controlled or abused by a central point of power.
They are:
- Decentralized
- Censor-proof
- Transparent
- Tamper-evident
- Immutable
Blockchain VS Cryptocurrencies
At this juncture, the differences in nature between cryptocurrencies and blockchains should be pretty stark to you, and intuitively so (assuming you have read Fincade’s first article on Cryptocurrencies).
If they are not, think about it this way: blockchains are the federal bank of America, whilst cryptocurrencies are the US dollars.
They are vastly different entities, and should never be conflated as the same thing!
Blockchains are the underlying technology that allows for Cryptocurrencies to be decentralized, private (pseudonymous) and secure, and both exist on very different layers of the ecosystem (think of blockchain as a bed of sorts for cryptocurrencies).
Of course, there is still much more to learn about blockchains, and why people would even want to invest in them, so do give us a follow here to find out more!
