blockchain for the noob
We’ve all heard about it, some call it a scam, some say it’s electronic money, some say that it’ll revolutionize everything, some say it’s just a fad, so which one is it? What is it really?
For the average person who absolutely has no idea of what blockchain is, we need to start very simple; water it down and make analogies based on what we all understand. Blockchain, to put it simply, is a different way of recording data.
One thing that sets us apart from animals is the ability for us to record and store history. As the way we record storage evolved over centuries and centuries, and fast forward to now, we have what we call a database; simply a collection of data stored electronically in a computer system. When it comes down to the base functionality of any database is divided into two: “write” data and “read” data.
How is this related to blockchain? Before going in depth, according to Merriam-webster’s Dictionary, it is defined as an “a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.” Yes, I know, anyone would be more confused, especially with all the technical jargon there, but don’t worry, we’ll go over it piece by piece. I want to focus on the key qualities of the blockchain, it’s distributed, decentralized, and accessible nature.
Distributed
First, let me first take you back way back into time, and invite you into an island called Yap. On this island, the natives used a very special kind of currency, called “The Rai Stone.” It was taller than a human and weighed so much that it was practically immobile. For the natives to use it as currency, they divided the stones into different pieces and would come together and announce who owns what piece of the stone. Every member of that tribe would keep a mental record of the transaction, and every time someone made a transaction, that record would be updated. Basically, every member of that tribe would all have a mental ledger of all the updates.
Blockchain’s main feature is it’s distributed nature. Many view blockchain as a completely new technology when the elements of it can be traced back far into time. The blockchain is comprised of a network of participating members, just like the tribal members in the island of Yap. Each member has exactly the same copy(data), or simply put, a digital ledger. What it ultimately means is that I have the same copy of data as you and vice versa. I trust the ledger that I have is accurate because I can cross-reference with my neighbors, and if I lose mine I can retrieve it back by syncing it with another person next door. But, what if the data is manipulated? How do I know that my neighbor and I have the same ledger?
What if the data is manipulated? How do I know that my neighbor and I have the same ledger?
What makes blockchain unique is how data is stored. You might be wondering, what does this have to do with verifying my data is true? Well, every time you update the blockchain, so to speak, “write” on it, all of those events(transactions) are stored and packaged into blocks. Each block will go through a paint-job(hash function) that will give it a unique “fingerprint.” That unique fingerprint is then “chained” to the next block of transactions. If I so change a stroke or a period, then my fingerprint changes, and since they are linked to the next block, it creates a “chain” reaction, which means that every block would have to have a different fingerprint. Because of this, any data written onto the blockchain cannot be erased or edited, it’s in computer terms “append-only.” This makes the blockchain reliable in that the paint-job(hash function) guarantees credibility.
I know now that the ledger that I have is the same elsewhere. If someone were to edit the data, it would obviously show. If I still can’t trust anyone, then I can go through all the transactions and give them a paint-job myself and if they match with what the network has then it’s fool-proof. Okay, I get that my ledger is basically un-editable, then who gets to decide the order of which transactions go into a block?
“Then who get’s to decide the order of which transactions go into a block?”
This is very complicated, because it’s different among different blockchain network, as there is no one blockchain for all. We’ll just focus on Bitcoin, since it’s the oldest and the most famous blockchain of them all. In the Bitcoin network, we have these “block makers” called Miners.
They don’t actually mine jewels or gems, but they are members who participate in the network to group a floating pool of transactions and package them in a block. However, if anyone of these miners makes a block it would definitely be chaotic and confusing on which block is the next one on the blockchain. These miners all must come to a consensus of what would be the next, sort of like the tribe on Yap, where they all come together and agree on the order of the transaction. This is where consensus comes in; depending on the network’s protocol, or the law of the network, the methodology differs. In the case of Bitcoin, their method of consensus is called Proof-of-Work; truth is verified by the person who puts work into finding the solution to the puzzle.
In the case of Bitcoin, their method of consensus is called Proof-of-Work; truth is verified by the person who puts work into finding the solution to the puzzle.
What does that mean? What do puzzles have to do with any of this?
In PoW, the miners have to solve a cryptographic puzzle and the only way to solve it is using advanced computer chips to brute force or calculate a large number of numbers to find the key to the keyhole. To make it simple, these miners would solve a problem like this(this example is super simplified to show what it means to brute force your way): x + 100 < 12345. So, what “x” do we put in to come up with a solution lower than 12345? What the miners have to do is calculate for “x” by plugging all the possible number combinations, which in this system, has billions of combination. The miners “brute force” to find the solution, and this requires a vast number of computer chips in factories, just like the one above. It’s very costly and it limits the game field to those who contribute to the network with heavy equipment and to those who work for it. If the solution were fixed to “12345”, it would be easy to find, so to add a gamification element, the network adjusts the difficulty rating periodically.
If these miners were to do this for free, they would be in deep piles of debt. So, with a mix of game theory, these miners are incentivized by being rewarded a bitcoin and also the transaction fees attributed to the transactions. That’s why it’s similar to mining because if you work the hardest, your work will be recognized by the whole network, and in return, you receive a gem.
Essentially, what consensus is, is which blockchain political system do I implement to elect the block candidate? Just like each country has their own way of electing their country’s head, each blockchain has their own version.
Now, PoW is not the most perfect consensus proofs out there. It requires expensive hardware, wastes a plethora of resources, and processes very slow. So there are other consensus proofs out there that try to solve the issues from PoW; but they sacrifice a bit of “decentralization” to compensate for efficiency. This is what we will talk about next.
Decentralized
In 2008, a person named Satoshi Nakamoto(this identity has yet to be revealed) first published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” This was the introduction of blockchain and the implementation of it, electronic payments. We have to realize what was going on in 2008. You’ve guessed it right, the global credit crises. Financial institutions and governments, with a lack of oversight, mishandled policies which led to the global financial meltdown. The heart of this issue was that many things were not transparent, and one institution had control over everything; it was highly “centralized.” Out of this sentiment, Nakamoto introduced a system that did not need to rely on central power, rather the power was decentralized to the participants of the network. This not only applies to governments but also to traditional database systems. It goes hand in hand with the distributed nature of blockchain.
Traditionally, when data is stored on the database, you’ll have to rely on the owner of the database, that data was not fabricated. When you want to read your balance, you have to trust that the data the owner is showing you retain its integrity. Blockchain actually reduces the middleman and gives the direct responsibility to the people. It offers transparency and also gives responsibility to do their own research(DYOR). There is no way to control the data unless you hack more than 51%(majority) of the network, which is virtually impossible to do so, especially with more matured blockchain.
The best implementation of what blockchain can do is payments. That is essentially what bitcoin was, a peer to peer electronic cash system. Normally, when you want to send money from one country to another, it requires a series of banks making transactions on your behalf and honoring it. The banks serve as the intermediary, which not only takes days to process but also requires a hefty fee. In addition, if the database is compromised at all and they have no backup, your data lost forever. There is a single point of attack. However, since this is peer-to-peer system that payment can happen virtually instantly and with low transaction fees. Yes, there are still transaction fees to reward the miner, but they are minimal. Now, this may seem perfect only for payments but this technology can be implemented in several different systems as well, especially with services that need a distributed, decentralized system, for instance, the supply chain industry. Now, bitcoin is only one form of blockchain but what would happen if you can make software programs on the blockchain? This is what “Smart Contracts” do and the very application of this is explosive. This is what Ethereum invented and is doing, which ushered in the blockchain 2.0 era.
Now, the final piece of blockchain is accessibility, who can participate and view what is going on on the network?
Accessibility
Anyone can access the blockchain by simply downloading the required software of that particular network. You can access it through your computer, phone, tablet, and other devices. With most public blockchain systems, they have a “Scan” service where you can basically track down any transaction that happened on the blockchain. Yes, all the data that has been recorded on the blockchain database is all transparent and visible but, your identity is pseudo-anonymous, it’s hard to equate a particular data to the real you. Now, because of this full transparency, privacy comes into question but there are other blockchain platforms that deal with privacy.
We understand that the core features of what blockchain is, it’s distributed, decentralized, and accessible, then why isn’t everyone using it?
Scalability
In any distributed system, it takes a longer time to process data because all data must be synced with all the participants of the network. The more decentralized the system, the more democratic it becomes and most democratic system, it takes longer to make a decision. There are systems and other consensus methods out there that tackle this issue but they sacrifice decentralization for scalability. Many blockchain platforms claim that they have ultra fast systems but if you look into it, the fewer nodes(participants of the network) it has; fewer nodes = faster processing.
There are different solutions out there that try to enhance the transaction processing, but it’s going to take a while till we see that come into production use. I’ll cover different blockchain systems in a different article. The point is that blockchain is a new system, and with any new system, it’s not perfect but we’re still exploring the possibilities and enhancing the limitations of it. One day, there might be a perfect way of achieving scalability and decentralization, and that it’ll replace traditional databases. However, until then, blockchain will continue carrying out the ideals of placing power into the hands of many and providing an alternate solution to data recording and storing.
