A SHORT Introduction To Blockchain For Normal People

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Crypto-what?

If you've attempted to dive into this mysterious thing called blockchain, you'd be forgiven for recoiling in horror at the sheer opaqueness of the technical jargon that is often used to frame it. So before we enter what a crytpocurrency is and how blockchain technology might change the planet, let's discuss what blockchain actually is.

In the simplest terms, a blockchain is a digital ledger of transactions, not unlike the ledgers we have been using since way back when to record sales and purchases. The function of this digital ledger is, actually, pretty much identical to a normal ledger in that it records debits and credits between people. That is the core concept behind blockchain; the difference is who holds the ledger and who verifies the transactions.

With traditional transactions, a payment in one person to another involves some type of intermediary to facilitate the transaction. Suppose Rob really wants to transfer �20 to Melanie. He is able to either give her profit the form of a �20 note, or he is able to use some kind of banking app to transfer the amount of money directly to her bank-account. In both cases, a bank may be the intermediary verifying the transaction: Rob's funds are verified when he takes the money out of a cash machine, or they are verified by the app when he makes the digital transfer. The lender decides if the transaction should go ahead. The lender also holds the record of all transactions created by Rob, and is solely responsible for updating it whenever Rob pays someone or receives money into his account. Quite simply, the bank holds and controls the ledger, and everything flows through the lender.

nft wallet That's a large amount of responsibility, so it is important that Rob feels he can trust his bank otherwise he would not risk his money with them. He must feel confident that the lender will not defraud him, won't lose his money, will never be robbed, and can not disappear overnight. This dependence on trust has underpinned pretty much every major behaviour and facet of the monolithic finance industry, to the extent that even though it was discovered that banks were being irresponsible with our money during the financial crisis of 2008, the federal government (another intermediary) thought we would bail them out instead of risk destroying the ultimate fragments of trust by permitting them to collapse.

Blockchains operate differently in a single key respect: they are entirely decentralised. There is absolutely no central clearing house just like a bank, and there is no central ledger held by one entity. Instead, the ledger is distributed across a vast network of computers, called nodes, all of which holds a copy of the entire ledger on their respective hard disks. These nodes are linked to one another via a software application called a peer-to-peer (P2P) client, which synchronises data over the network of nodes and makes certain that everybody has the same version of the ledger at any given time.

Whenever a new transaction is entered into a blockchain, it is first encrypted using state-of-the-art cryptographic technology. Once encrypted, the transaction is converted to something called a block, which is basically the term used for an encrypted group of new transactions. That block is then sent (or broadcast) in to the network of computer nodes, where it is verified by the nodes and, once verified, offered through the network in order that the block can be added to the end of the ledger on everybody's computer, beneath the list of all previous blocks. This is called the chain, hence the tech is known as a blockchai