Blockchain, a High Level Explanation

Blockchain is the amalgamation of the database and network concepts. The problem with network is that each has its own version of reality, that is to say its own data. If one machine wants to communicate with another machine and share data there needs to have an interface.

Imagine a program that checks for the events you have said you are interested on Facebook. For it to get the data it needs to communicates with an interface, in this case the Facebook API, so the data is shared. This program is not interoperable with Facebook so we need a software, the API layer to do this data exchange.

Blockchain is a solution to this problem. It is merge of database and network where all machines share the same data thus the reality is the same across all machines. One modification in one place, it will affect everywhere else.

Blockchain is also known as a ledger or a book of transactions that is append only; new transactions that are basically data can only be added and once they have been added it is permanent.

The first experiment with blockchain technology starts with Bitcoin after the seminal paper by Satoshi Nakamoto. Bitcoin is the first large scale implementation of the concept. It uses transactions to encode data about the transfer of cryptocurrency. It is a ledger, i.e. it keeps tracks about who owns what. As it is a add only ledger, when someone send you a bitcoin as a transaction the transaction is recorded in the ledger and it is cannot be removed or tampered with. If this it removes the need for a third party entity, a bank for example, to validate the transaction between two individuals.

How can one transact? There are bitcoin wallets and they basically work as follows: it has an address on the blockchain, it looks at the number of transactions that the address has in the shared ledger, then it calculates a number that is your balance in bitcoins, incoming transactions minus out coming transactions.

The second wave of Blockchain technology

The code that checks for balances and transactions is on the bitcoin wallet and not in the ledger itself. Imagine that we store this code or a other code that is more deterministic for example pay Alice 5 bitcoins once she posts 10 blog posts. This is called a smart contract which uses the list of transactions to form the state and also include code that can be executed. And remember this code once on the blockchain it is permanent. This new wave uses not only financial transactions on the blockchain but general-purpose computing programs. This concept has been put forward by Vitalik Buterin in the Ethereum white paper.

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