Sound Smart and Accurate When Talking About Blockchain
The following notes are phrases that people in the blockchain industry, both technical and non-technical, can memorize — with full confidence that these phrases are accurate concerning blockchain. This was created due to the fact that there have been many, even many long-term blockchainers, making false statements about this new technology.
This is partially due to technical people trying to simplify and the non-technical taking simplifications to heart. Sometimes it’s just like the Telephone game, in which by the time a message gets to the sixth person, it’s just completely different from the original statement. At Fintech conferences sometimes, it feels like being the ninth person to get a message in the Telephone game, but the incorrect blockchain statement came from another, previous conference.
The following statements do not use analogies but are in plain-simple English. I hope the community can find these Cliff note-esque statements useful. Unfortunately, they might not be easy to understand, but neither is blockchain. However, if one was to look deeply into the statements, blockchain, an indeed complex topic, could be demystified. Here it goes.
- A blockchain is a list of linked transactions that is stored on multiple computers with identical copies of said list.
- A blockchain transaction is data sent from one blockchain address to another with a reference to one or more previous transactions that were sent to the sender of a current transaction.
- A blockchain address is an identifier that can be the receiver or sender in a transaction.
- A blockchain transaction is created by using a private key of a blockchain address, a list of previous transactions in which said address is a receiver, and cryptographic functions that generates text that is sent from an address to a node which submits the transaction (signed hash) to a blockchain network.
- A private key can be decoded to reveal a blockchain address by all participants of a blockchain, but a blockchain address cannot be decoded to reveal a corresponding private key.
- A blockchain node is a computer running specific software that verifies new transactions by reading from its identical copy of the blockchain and then relaying transactions to other computers in the blockchain network once a transaction is verified by having correct references to previous transactions, or “inputs”.
- A smart contract is data stored within a blockchain address, upon creation, which specifies rules for how to handle incoming transactions in the future.
- A token smart contract is data stored on a blockchain address with rules specifically oriented towards administering ownership transfer records based on a ledger of blockchain addresses and balances of tokens generated by said smart contract.
- Some blockchain types, such as Ethereum, have smart contract capability. Others, such as Bitcoin Core, do not.
- Blockchains that do not have smart contract capabilities built into them use protocols and data within transactions to track ownership of tokens, but are primarily used as payments networks for currencies (often called “cryptocurrencies”) generated and provided to specialised nodes serving certain functions to verify transactions within a blockchain.
- While most blockchains have built-in cryptocurrencies, some such as Hyperledger Fabric, do not have built-in currencies and are purely used for their smart contract capabilities.
- Cryptocurrencies generated by transaction set (block) validation and tokens generated by smart contracts derive their value from scarcity and demand.
- The success of a blockchain is based on its community of software developers, node operators, businesses and individuals who use a particular blockchain, which is directly linked to demand, and therefore value.
