It’s Time for Me to Learn About Blockchain
We’re nearing the end of business school and this is one of the last assignments I have left to turn in (albeit, late). With that, I’m using this blog post assignment to teach myself a thing or two about blockchain technology so that I too can be an MBA graduate chatting about crypto at the bar. Personally, the subject is daunting and I’ve taken a back seat in these discussions for fear of sounding foolish. So, this post is for me (but read if you want to!) because when else will I sit down and sift through the internet to learn the basics of blockchain? Disclaimer: I cannot guarantee that this information is accurate and you’re probably better off learning about it on Wikipedia.
First and foremost, blockchain is a technology. It is described (on literally every website) as a “digital ledger” that records transactions and events. These transactions are recorded in a data block that contains information about the current and previous block. Several blocks strung together create a “blockchain,” like a very long receipt.
A block contains data that is encoded in a unique “hash,” sort of like a fingerprint (How Does Blockchain Work — Simply Explained). The block also contains the previous block’s “hash.” It is the relationship with the previous block (and the rest of the chain) that makes it difficult to tamper with the data — if you alter information in one block, the previous blocks would have to change too. As a result, one key feature of Blockchain is that it is incredibly secure.
Another key feature of blockchain technology is that it “decentralized,” which means that the data is not transferred or controlled by one central server, but instead, is shared via a whole network of computers (each computer is called a “node”). Everyone in the network has the same access to view the blockchain, like a google doc (Blockchain Technology Defined), and can verify each transaction.
Alright, it’s all coming together. Now, I’ll turn to cryptocurrency to get a better understanding of how blockchain is used.
Just to clear things up: cryptocurrency uses blockchain technology, and Bitcoin is a type of crypto (there are many others).
I found this video and this video particularly helpful. To summarize, crypto is a virtual currency that can be sent and received between parties on the internet. The network of users, or “miners,” is responsible for approving these transactions, and once approved, the transaction (which has a small fee) is recorded in the blockchain, or ledger. After “mining,” new bitcoins are minted as a reward for those doing the work.
I picture miners as people hunched over their computers solving problems. Sort of, but not really. Mining no longer takes place on a single computer. It now requires enormous computers and a ton of energy, which are frequently owned by mining pools (individuals who have teamed up together) and mining companies. Miners need complex mining hardware to verify several transactions, essentially solving a “hash puzzle,” and then can add a block to the blockchain (Hash — The Puzzle of Bitcoin. What are Miners Mining?). This puzzle is hard to solve — requires a lot of trial and error — and the miner who solves the puzzle or “lottery” first (~every 10 minutes) gets rewarded with crypto.
How can cryptocurrencies be worth anything if they’re not backed by the government or a central authority? Just like tangible assets (e.g., real estate, art), supply and demand affect the price. Every cryptocurrency (e.g., Bitcoin, Ethereum, Cardano, Dogecoin) has rules about their cap and how much they can mint and burn.
How might I get involved in this crazy world? I could use dollars to buy cryptocurrency on a platform exchange (e.g., Coinbase, Kraken, Gemini) where I would then be able to buy, sell, hold, and trade my coins. Alternatively, I could invest in a crypto fund or company, which could be a mining company, a blockchain technology company, or even a company that owns a ton of cryptocurrency.
I’m not ready to invest, but I might be ready for a conversation at the bar.
Resources
https://www.investopedia.com/investing-in-cryptocurrency-5215269
https://www.youtube.com/watch?v=SSo_EIwHSd4
https://www.investopedia.com/terms/b/bitcoin.asp
https://builtin.com/blockchain
https://www.youtube.com/watch?v=NtcvJSA6B3M
https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp
https://time.com/nextadvisor/investing/cryptocurrency/what-are-cryptocurrency-exchanges/
https://sectigostore.com/blog/what-is-crypto-mining-how-cryptocurrency-mining-works/
