Paul Bryzek
13 min readJan 9, 2018

The Ultimate Newbie Guide to Blockchain

“The blockchain does one thing: It replaces third-party trust with mathematical proof that something happened.” Adam Draper

As 2017 comes to an end and we look forward to 2018, the biggest trends in technology is cryptocurrencies, Bitcoin and their massive disruptive surge. Bitcoin clearly stole the spotlight, but most don’t understand that it is the actual underlying Blockchain technology that is causing this disruption across every single industry imaginable.

Crazy Facts about Blockchain

Let’s go over some numbers so you can grasp how much blockchain technology is of great value. These facts will help you to understand this new technology:

  1. Bitcoin [1] pioneered blockchain technology and today, it has more than 21 million accounts [2] and is under enormous growth. In 2017, the number of users almost doubled.
  2. The creator behind Bitcoin is anonymously known to be a person or group of people named Satoshi Nakamoto. There are many who worked and communicated with him via email,the entity’s real identity is unknown.
  3. Blockchains can be public like the internet or private like the intranet.
  4. Currently, blockchain is analogous to where the Internet was 20 years ago [3]. Pause and think about the growth that has happened to the Internet in the past 20 years.
  5. Today, approximately 0.5% of the world’s population use blockchain and around 50% use the Internet.
  6. Public Blockchains are 100% transparent since anyone with access to a blockchain can see the entire chain and history.
  7. All participants within a network observe all changes to the shared ledger, think of it as a Google Document. The ledger constantly gets updated and every participant has their own immutable copy of it.
  8. 91% of banks [4] are investing in blockchain solutions by 2018.
  9. 14% of financial market [4] institutions plan to go into blockchain production in 2017.
  10. The global blockchain market is expected to be worth $20 billion [5] by 2024.
  11. In the last five years, VCs invested more than $1 billion into blockchain companies [6].
  12. Tech giants like IBM [7] and Microsoft [8] invested a lot in the blockchain technology. IBM invested $200 million and 1,000 employees to blockchain projects.
  13. A blockchain is actually the most vulnerable to a breach when it first comes online [9].
  14. Nine out of ten agree that blockchain will disrupt the banking and financial [10] industry.
  15. It is estimated that banks could save $8–12 billion annually if they use blockchain technology.
  16. One third of C level executives [11] are considering adopting or are currently using the blockchain technology.
  17. Current market price of a bitcoin is $14,739.47 [12]
  18. Current trade value of a bitcoin is $3,029,339,222.92 [12]

Fundamentally, blockchain is a distributed database, meaning the storage devices that are used as the database are not connected to a common central authority. A blockchain is thus a digital ledger, shared across thousands of different nodes (computers) in a vast network. Blockchain records all transactions in a public or private peer-to-peer network. The ledger is distributed to every single member node throughout the network, and continually records the history of each transaction between the peers in the network.

A ledger records each transaction in a chain of cryptographic hash-linked blocks, which is where the name Blockchain originates. Every confirmed and validated transaction block is linked and chained from the beginning of the chain to its latest chain. It’s not possible to tamper with an already chained block which provides security to its users as each distributed node maintains its own copy of the ledger. Saying this, it is evident that the blockchain acts as a source of truth and members in the blockchain network can only see transactions that are relevant to them. Every block has a timestamp and a link to the previous block.

Let’s make a simple analogy by comparing the blockchain to a book.

Blocks in a chain = pages in a book

Thus, a book represents a chain of pages and each page in a book has:

  1. The text
  2. Information about itself — at the top of the page there is a title of the book, chapter numbers or title, at the bottom are page numbers who indicate where you are in a book. This is called meta-data.

Related to that, each block contains:

  1. The contents, e.g. for bitcoin it is the bitcoin transactions sending from 1 individual to another.
  2. A ‘header’ that contains data about the current and previous block. The header has technical information about the block such as a fingerprint or hash of the transactional data and a reference to the previous block. The hash maintains the order, think of it as a page number.

To sum up:

  1. The blockchain is based on a public ledger system.
  2. The public ledger keeps all the records of every possible transaction ever done.
  3. Each page of the ledger is a block and each block is connected forming the blockchain by using hashes.
  4. Blockchain ledgers are immutable i.e. once data enters into the blockchain, it can never be changed, erased or modified.
  5. Blockchain is authentic, 100% transparent and anonymous.

The Power of Cryptography — How Blockchain Works

Cryptography can be understood as the third-party of trust. It ensures that each participant’s copy of the distributed blockchain is in sync. Every user can only edit parts of the blockchain that they own by having a private key that is required to write to the file. Instead of relying on a centralized third-party authority like a financial institution to mediate transactions, member nodes use a consensus protocol to agree on ledger content. Cryptographic hashes and digital signatures are utilized to ensure the integrity of each transaction.

When you think about blockchain, think about transactions. Companies traditionally recorded transactions in ledgers that were kept in secrecy. These ledgers were isolated and when conducting business, every company would maintain its own separate record to verify information. Blockchain is a ledger with one giant difference — trust built-in to the blockchain itself. Blockchain is a distributed consensus ledger, both shared and trusted, by each node of the network. By creating distributed trust through a collectively agreed consensus protocol, frees the ledger from isolation central authority constraints just like the World Wide Web frees information and communication.

With blockchain, there is a single shared record that gets distributed across every node in the network. As previously mentioned, every transaction is stored in a structure called a block. When the block gets verified (by the majority of the network) as true and trustworthy via the consensus protocol, it gets posted simultaneously to every member of the consortium. Every block has a unique hash key that is calculated on the precise content of all the transactions in the block. If even the smallest piece of data within a block is tampered with, the hash key becomes invalid making the tampering immediately evident to every node in the network. When a new block gets posted to the digital ledger, it is immediately linked to and from the preceding block using their hash keys. This results in a 100% traceable and secure record in a chain. It is possible to access all previous blocks that are linked in the chain. The blockchain database retains the complete and immutable history of all transactions, instructions and assets that were executed. Thus, blockchain allows participants who have the private key and corresponding digital signature to share accessible, transparent and trusted information.

The consensus protocol ensures that the shared ledgers have identical copies thus lowering the risk of fraudulent transactions. Simply put, tampering would have to happen across thousands of computers on the same network in the exact same way at the exact same time. In practice, once a network achieves critical mass — hacking the distributed ledger is not possible.

Cryptographic hashes are a computational algorithm. They ensure that any alteration to the transaction results in a different hash value being computed that indicates that a transaction is possibly compromised.

Digital signatures ensure that the transaction originated from senders who have signed in with private keys and not imposters, like hackers.

The blockchain network is a decentralized peer-to-peer network that prevents any single participant or group of participants from controlling the infrastructure or undermining the system. It is bullet-proof technology. It is a mathematical algorithm.

All the participants in the network are equal and obey the same protocols. Participants can be individual people, organizations, or anyone but they all follow the same protocols.

The blockchain system records the chronological order of transactions across every single node in the network, agreeing to its validity by using the chosen consensus model. The transactions are irreversible, immutable and agreed upon by each member in the network.

The Benefits of the Blockchain Technology

The benefits are numerous but here are some of the major ones:

  • Shared ledgers with immutable transactions that cannot be altered once validated by consensus. This results in saved time, costs and reduced risks. Furthermore, disputes and corruption are not possible due to the decentralized nature of blockchain.
  • The consensus mechanisms result in a consistent data-set with no errors, almost real-time data and the possibility for participants to change the description of the owned assets.
  • Since nobody owns the source of origin for information that is in the shared ledger, there is more trust and integrity in the transaction information.
  • Improved transparency and lower costs of audit.
  • The smart contracts are automated and final which leads to an increased speed of execution, less risk, and reduced costs that ultimately helps businesses bottom line.
  • Decentralized nature of blockchain prevents failure because deviation from the rules can be easily identified by the thousands of nodes within the network.
  • It is immutable which means that the cryptographic protocols that confirm and validate the transaction are permanently timestamped. Once recorded, these transactions are validated by every single node in the network.

“Blockchain technology isn’t just a more efficient way to settle securities. It will fundamentally change market structures, and maybe even the architecture of the Internet itself.“ — Abigail Johnson

Current Implementations of the Blockchain technology

The blockchain technology can be implemented quite widely. Currently, the financial services, governments, transportation, insurance and many others are adopting the blockchain technology to support new business models. Certainly, the most famous and known implementation of the blockchain technology is Bitcoin.

The Bitcoin implementation, created in 2008, is often called the Blockchain 1.0. Here, the ledger keeps the complete history of records of transactions by use of a bitcoin. Bitcoins are actually records that contain the information about an account that has a specific time the bitcoin was transmitted. Bitcoin is a transaction that allows for anonymous trading without a consortium whilst providing the basic distributed ledger of every transaction.

Ethereum was the next step and it was created in 2013 and is called the Blockchain 2.0. It allows for the running of arbitrary code in order to complete computational process. It is a virtual machine and runs as a public blockchain. Ether is the currency of Ethereum and it is associated with an address file and a wallet that are unique to each account.

The Republic of Georgia [13] committed to use the bitcoin network in order to validate property-related government transactions. This is the first time that a national government used the blockchain. A similar software is being developed in Sweden, Honduras, and Chicago.

The government of the United Arab Emirates is exploring a wide range of use cases including business registration [14], trade [15], and central bank operations [16]. The government in Estonia is working on a blockchain based solution for voting [17], health care [18] and identity management [19].

The state of Delaware [20] is working on a blockchain-based corporate registry system [21] and share issuance. Numerous federal agencies in the United States announced blockchain programs. The Pentagon [22] has shown interest in using blockchain technology because they believe that it provides more security [23]. Singapore is using blockchain technology for interbank payments [24].

How would industries benefit from the blockchain technology

Imagine a world with less documentation needed and less papers to fill. The distributed ledgers have successfully removed cabinets with paper files and helped save time and costs by managing the information. Governments are still suffocating in data and data management thus providing massive opportunity for blockchain to transform governments around the world.

Identity Management [25] is already being examined and tested for use with blockchain technology. Digital identity is strongly needed nowadays considering the fact that one-fifth of the world’s population lives with no legal or officially recognized identity. According to the blockchain technology, a secure identity could enable efficient transactions across a wide variety of asset classes.

Land Registration [26] helps to protect buyers in developed countries but also serves as a basis for investment. A reliable property record could be created thus also reducing the number of third-parties involved in the process, ensuring security, lowering the cost and saving time.

Voting has been under a magnifying glass recently with even comments that the Russian President Putin interfered with the U.S. elections in 2016. By using the blockchain technology, election results would be verified. Furthermore, this would lower the costs and help save the environment too (less papers used), the audibility of the votes would be secured, potentially more people would vote and a greater transparency would make the voters happier. This could help solve a lot of issues, especially in less developed countries where elections are framed. Blockchain could provide the fundamental building blocks to finally enable citizens to vote directly from their mobile device.

Blockchain could also be used to protect authorship. For example, it could solve the content issue and plagiarism and even musical rights. Imagine that everything is simply sorted out. This could benefit transportation, banking, financial institutions and much more.

Is my business eligible for Blockchain technology

So, if you want to know whether your use case represents a proper fit for blockchain, answer the following questions:

  1. Is there a business network involved?
  2. Is a consensus used to validate transactions?
  3. Must the record of transactions must be immutable, or tamper proof?
  4. Should dispute resolution be final?
  5. Is an audit trail required?

If you answer was yes to the first question and at least one more, then you can certainly benefit from the blockchain technology. A network must be involved but networks can take so many forms. It can be between two or more organizations, like a supply chain, or a network within an organization. For example, within an organization a blockchain technology could be used to share data between divisions and create an audit network. The network can also exist between individuals who need to store data.

A handy crypto glossary

Blockchain: a digital, decentralized ledger that keeps a record of all transactions that take place across a peer-to-peer network. The major innovation is that the technology allows market participants to transfer assets across the Internet without the need for a centralized third party. It is a collaborative technology that is becoming the new business process improvement software.

Among other things, blockchain is mostly used as the technology that enables the existence of cryptocurrencies. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.

Cryptocurrency: a medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.

Bitcoin: the best-known cryptocurrency, the one for which blockchain technology was invented.

Cryptography: a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it. Cryptography not only protects data from theft or alteration, but can also be used for user authentication.

Blocks: Data is permanently recorded in files called blocks. They can be thought of as the individual pages of a city recorder’s record book (where changes to title to real estate are recorded) or a stock transaction ledger. Blocks are organized into a linear sequence over time (also known as the blockchain).

The consensus protocol: Ensures that the shared ledgers have identical copies thus lowering the risk of fraudulent transactions.

Cryptographic hashes: a computational algorithm. They ensure that any alteration to the transaction results in a different hash value being computed that indicates that a transaction is possibly compromised.

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Other Articles I’ve written:

  1. https://bitcoin.org/en/
  2. https://blockchain.info/en/charts/my-wallet-n-users?timespan=all
  3. https://www.reddit.com/r/ICONOMI/comments/61hmv4/10_blockchain_facts_that_every_investor_should/
  4. https://www.ibm.com/blockchain/financial-services/
  5. https://expandedramblings.com/index.php/blockchain-statistics/
  6. https://hbr.org/ideacast/2017/06/blockchain-what-you-need-to-know
  7. http://fortune.com/2016/04/29/ibm-blockchain-cloud-business-build/
  8. https://cointelegraph.com/news/microsoft-joins-blockchain-focused-chamber-of-digital-commerce
  9. https://www.coinsilium.com/education/10-facts-blockchain/
  10. https://apiumhub.com/tech-blog-barcelona/blockchain-technology/
  11. https://securityintelligence.com/news/ibm-study-blockchain-adoption-on-the-rise/
  12. https://blockchain.info/stats
  13. https://www.forbes.com/sites/laurashin/2017/02/07/the-first-government-to-secure-land-titles-on-the-bitcoin-blockchain-expands-project/
  14. https://www.wsj.com/articles/dubai-aims-to-be-a-city-built-on-blockchain-1493086080
  15. https://www.reuters.com/article/us-dubai-fintech-idUSKBN15M0RR
  16. https://www.coindesk.com/emirates-nbd-enlists-uae-central-bank-blockchain-check-trial/
  17. https://www.reuters.com/article/nasdaq-blockchain-idUSL1N1FA1XK
  18. http://www.ibtimes.co.uk/guardtime-secures-over-million-estonian-healthcare-records-blockchain-1547367
  19. http://fortune.com/2017/04/27/estonia-digital-life-tech-startups/
  20. https://www2.deloitte.com/insights/us/en/industry/public-sector/understanding-basics-of-blockchain-in-government.html#endnote-3
  21. http://www.ibtimes.co.uk/consensus-2016-state-delaware-open-blockchain-business-1557851
  22. https://www.defense.gov/
  23. https://news.bitcoin.com/government-agencies-want-to-adopt-bitcoin-and-blockchain-technology/
  24. https://www.enterpriseinnovation.net/article/how-are-governments-using-blockchain-technology-1122807855
  25. http://www.worldbank.org/en/programs/id4d
  26. https://www.alta.org/industry-research/15-04/2015_Year-end_Title_Insurance_Industry_Market_Share_Executive_Summary.pdf
Paul Bryzek

Blockchain coinciding with iOT has created the biggest transfer of wealth we will observe in our lifetimes.