Photo by Money Control

Blockchain, Cryptocurrencies, Ledger, Bitcoin, Decentralised. Even if you aren’t a tech person, you probably heard one of these names at least once in your life. In the last decade, these new technologies have gained a lot of attention and more and more people are becoming more confident in talking about them.

If you feel foreign to these topics don’t worry, the goal of this article is to give you a quick introduction to these revolutionary technologies that are changing the world. Also at the end of this article, I’ll list all the useful links related. But before we dive into the details…

Why is Blockchain important?

In 2008 Satoshi Nakamoto published Bitcoin: A Peer-to-Peer Electronic Cash System. This group, or individual person, invented the Blockchain to create an inflation-free system without the need of a trusted authority, like a bank. In order to do that, we need to tackle the problem of Double-Spending.

Double-spending is a well-known problem in the Financial World. In a nutshell, Banks need to guarantee that if you spend £3 on a cappuccino (with oat milk) at your Local Cafe, you won’t be able to use the same £3 again.

Now you might wonder why Blockchain was created without taking into consideration trusted authorities such as banks? In 2008 something bad happened that caused a lot of victims all around the World, called the Subprime Crisis - an interesting topic that I will probably discuss in the next article. For now, what you need to understand is that this crisis was caused by mismanagement of the Banks’ Debit and the absence of any surveillance on it.

In order to save the banks from this crisis, people’s money was used (taxes) even though they didn’t cause the crisis directly.

Blockchain is a better solution than the way banks handle transactions, and the best part is that this new system is decentralised, meaning no middlemen are required to manage transactions.

What is the Blockchain?

The Blockchain is a list of blocks linked together with cryptography (hash). A block is a container of transactions that has: a hash of the previous block, a timestamp, and transaction data. The hash is a function that transforms a value into a new one, masking the original information. When a new transaction occurs, it is added to one of these blocks.

Earlier, we mentioned that the Blockchain is a decentralised solution, meaning there is no central authority that checks if a new transaction is unique and valid. Here's when the ledger came into place.

A Distributed ledger or DLT is a shared, replicated and synchronised data shared publicly. Everyone can have access and see all the transactions that happened throughout the entire history of the ledger. The blockchain itself could be shared with everyone, used as DLT and be the source of truth for all transactions.

How does Blockchain prevent alterations in the ledger?

Let's start to mention the biggest player in this topic: Bitcoin (BTC). What is it? Bitcoin is an open-source peer-to-peer network and it represents a digital currency also known as Cryptocurrency. When you spend bitcoins a transaction is generated and made publicly available to everyone using this cryptocurrency.

If you try to alter this exact transaction and save it in a block, all the other ledgers will notice this discrepancy. This means that your ledger will be detected as invalid or altered as it doesn't reflect the others. The only possible way to succeed is to change at least 51% of the entire ledgers available out there. Also, you’ll need to recalculate the last block and replace it in all the other computers before they generate their own version.

Considering the number of transactions that happen every day and the latency that exists between the connections, the complexity and the computational power is too high to be feasible.

Calculate hash

One thing that is important to understand is each block is the result of calculations that someone has to do in order to have a synchronised blockchain. This someone is the Miner. Miners are people or organisations that offer their computational power in exchange for bitcoin.

There are 21 million Bitcoins that can be mined and today more than 18 million have already been mined. Before you research how to mine bitcoin, let me say that you need to calculate 2.7 Quadrillion hashes to generate a single Bitcoin according to Investopedia. I bet that even with the best laptop available it will take years and a lot of electrical consumption.

Conclusion

This was a simple introduction to this huge topic. Hopefully, you’ll now have a better understanding that might trigger your curiosity and encourage you to read more about it. Below I listed some useful documentation and websites if you want to know more:

• Bitcoin: A Peer-to-Peer Electronic Cash System
• Bitcoin’s Website
• Blockchain
• How many people use & Own Bitcoin?

Also if you want to see how I created my first cryptocurrency have a look at this small project I did.