B21 Cryptocurrency Education Series: Blockchain Simplified!

In the second blog of our cryptocurrency education series, we are going to take a look at cryptocurrency technology, the blockchain!

Although we are now starting to see a rise in blockchain education material, the mass market is still confused about what blockchain technology is, what it has to do with cryptocurrency and how it works.

This is because the majority of the content that is available uses technical terms, jargon and acronyms without explanations of what they mean, all of, which is confusing for the mass market reader.

A Google search for ‘What is blockchain technology’ will bring up articles headlined with terms such as ‘Blockchain technology is a distributed ledger’, Blockchain runs on a peer-to-peer network’, and ‘ Blockchain technology is immutable and uses consensus’ — and so, it is little wonder that this is as far as people get when it comes to taking the steps to learn about blockchain technology or begin their cryptocurrency education journey.

Although blockchain seems like a very complicated system, we have , in fact, been using many aspects of the blockchain in business for many years, long before cryptocurrency was even invented. Below we have put together an outline of blockchain technology in simple terms.

What is Blockchain Technology?

Blockchain technology is the technology that cryptocurrency is built on, it is a form of distributed ledger technology, otherwise known as a DLT. You can think of this as a kind of online database, which consists of records of important data such as financial transactions, in the case of cryptocurrency who owns a specific Bitcoin for example.

In the case of the blockchain, all records of data are stored in the form of blocks, which are created by a special computer code called cryptography, each of these blocks is linked together using this same code and this is why it is referred to as a chain — blockchain.

This blockchain can run across several locations (around the world) and it can be accessed by multiple participants — one blockchain can have people from Europe, Canada the US and Asia all working at the same time from their own computers. This is what is known as a peer-to-peer network, a group of computers that are connected to the same network but do not necessarily need to be in the same room. This means that there is no one central computer server and in the case of cryptocurrency and blockchain technology the peer-to-peer network is used to share files and information.

Here, an important point to note in your cryptocurrency education notes is that while blockchain technology is a type of distributed ledger, not all distributed ledgers are blockchains. This is a something that many people have become confused with — they assume a distributed ledger is the blockchain. A distributed ledger is, in fact, the term used to describe the technology that distributes records of information among those who use it, this can be privately or publicly, for example, accounting firms, banks, healthcare, insurance and the retail industries have used DLT’s for many years, which have no association to the blockchain whatsoever.

What is Cryptography?

As mentioned above, a blockchain consists of a growing list of records (blocks) that are linked together by a computer code which is known as cryptography, which is defined as the art of writing or solving codes. This is not a new term, and despite the name, it was around long before the dawn of cryptocurrency dating back to world war II, enabling secure and private communication between those at war. In modern times cryptography is used by computer programmers to keep our digital communications safe, it’s what keeps our bank accounts, emails and Whatsapp messages safe and private. Without cryptography, online payments would not be possible and hackers could easily gain access to our emails and messages.

In the case of cryptocurrency, cryptography is the process where bitcoin miners solve tough mathematical problems in order to create a block on the blockchain. This is a process that is purposely been designed difficult, time-consuming and resource-intensive to ensure that the number of blocks that are linked on the blockchain each day remains a steady process.

Blockchain Technology is Immutable!

Blockchain technology is often described as being immutable — meaning that it is impossible to edit/change or tamper with. While the technology was designed with this concept in mind, the reality is that it depends on the type of blockchain you are using.

In the case of Bitcoin which uses the public blockchain, it is very difficult to make edits to the system, this is due to the consensus method that is used on the blockchain and the resource intensive, time-consuming process involved in adding data to the blockchain.

Making an edit to a transaction requires an enormous amount of computer power, time and resources. If changes are made, they will be logged into the history of the blockchain for all to see — history can’t be deleted on the blockchain, if there was ever an attempt to tamper with the system then it would be seen by all participants on the network.

This is what differentiates the blockchain from other databases and what builds trust among its users. It is described as immutable because of the amount of effort and resources needed to edit or change a blockchain or data on the system, and for this reason, changes and edits very rarely occur. It is not as simple a process as a user accessing a database and quickly editing the information in a few seconds and then pressing save!

The Blockchain is Decentralised!

Blockchain technology is described as being decentralised, this means that it is not controlled by any central party, in other words, no one person, government, business, entity or group has control over it . However, this does depend on the type of blockchain that is being used. There are three main types of blockchain, public, private and consortium (outlined below) In the case of cryptocurrency where the public blockchain is used it is completely free of control and is 100% decentralised, here ‘Consensus mechanisms’’ (a set of rules that are created by all of the participants on the blockchain) are used as a way of reaching an agreement/decisions for any issues that may arise, there is no one leader controlling this blockchain.

Types of Blockchain Defined

A public blockchain is completely open, which means that anyone anywhere can read, write, or participate on the blockchain as long as they are connected to the network. The public blockchain is decentralised and transactions can be viewed by anyone. The first public blockchain innovation was Bitcoin, however, since 2009 the public blockchain has been used to create other cryptocurrencies and for a variety of different aspects of business other than just creating cryptocurrency, such as the creation of ‘Smart contracts’ in the case of the Ethereum blockchain.

A private blockchain otherwise known as a permission blockchain operates more like a traditional database in that one or more entities control the network and so access is restricted. In a private blockchain, participants need to obtain permission to access the system, here the positive is that all participants can be identified and therefore there is a higher level of trust associated with a private blockchain. However, the entity that controls the blockchain can override or delete entries at any time, making it less decentralised than a public blockchain. An example of a private blockchain would be Hyperledger, which is supported by the likes of IBM, Intel and SAP.

Consortium blockchain platforms have many of the same advantages of a private blockchain, but instead of operating under the leadership of a single entity, they operate under a group leadership style where a particular group must agree that any changes that are made regarding the blockchain will benefit the entire network. Here instead of allowing anyone with an internet connection to participate in verifying transactions on the blockchain as in the case of the public blockchain, or allowing only one individual or company full control as with the private blockchain, the consortium blockchain permits only a few selected group of approved individuals to operate the system. This type of blockchain is often associated with enterprise use, where a group of companies collaborates to leverage blockchain technology to improve their business process.

Blockchain Technology Beyond Cryptocurrency

Although cryptocurrency was what brought the world’s attention to blockchain technology, cryptocurrency is just one use case of the blockchain. In other words, while cryptocurrency depends on blockchain technology, blockchain technology can be used for so much more than the creation of cryptocurrency. So far we have already seen the blockchain used to implement smart contracts, a self-executing agreement between two parties, that is written in computer code and recorded and stored on a public ledger on the blockchain. Another use case is the building of decentralised applications (DAPS), making for more transparent operations in comparison to normal apps. We have also seen the likes of energy giants BP and Shell experiment with blockchain technology to track energy trading and US retail giant Walmart has been executing blockchain technology to help to eliminate the chances of contamination from produce exports. From finance and energy to healthcare and real estate with blockchain technology the possibilities are endless.

The above is intended to give you a basic outline of the blockchain to help you along your cryptocurrency education journey. However, we understand that it is a complicated matter and If you have any questions in relation to any of the points above, or if there is anything you would like us to clarify, feel free to leave your comments below, or message us in our Telegram page, on Facebook, Twitter or in B21 Life — our free cryptocurrency education app.

In Part two of our blockchain technology education blog will take a look at how blockchain is used in business and look at some examples of companies that use blockchain technology to enhance business and customer experience in a variety of different industries.