Blockchain, Bitcoin, Ether and altcoin

Blockchain?

Explaining the whole blockchain principle in a few sentences is simply not possible. We will, therefore, explain the technology simplified below, so that the basis is clear. Furthermore, in our explanation, we will not mention all aspects of the blockchain and limit ourselves to the most important relevant information.

What is blockchain?

The blockchain is simply a new way of storing and sending data. In this case, everything can fall under data, such as; money, texts, Excel sheets, contracts, drawings and votes. The transactions of these data and properties within the network are represented in the blockchain. Every transaction within the network is provided with a digital signature and timestamp, then it is recorded in the blockchain forever. The difference with the data storage as we now know is that the blockchain is fully distributed. The diagram below shows how the network can look like. In a blockchain, every node (computer/participant) in the network has exactly the same real-time database. Before a new piece of information can be added to the chain, the nodes first have to reach a consensus on the correctness. The advantage of this is that it is virtually impossible to commit fraud with data and that a trusted third party is superfluous. Simply put, it comes down to working together in a google drive spreadsheet. An important difference is that in the blockchain something can only be added and not changed.

How does it work?

When a new transaction is offered to the blockchain, the majority of the nodes within the network must perform algorithms to evaluate this transaction and to check whether the proposed block is legitimate. The block has to connect seamlessly with the previous transactions. If the majority of nodes reach an agreement (consensus) on the history of the relevant transaction and the legitimacy of the transaction’s digital signature, then the new block within the network is accepted and added to the other blocks of the ledger.

The Bitcoin network.

By far the best-known application of blockchain technology is Bitcoin. The Bitcoin is, as many people know, a digital payment instrument with which we can pay online. You may think that the economic system that we have is pretty well put together. That is basically also true, but everything we buy today always goes through the bank or credit card companies. Of course, they want a fee for every transaction and they don’t feel bad asking it. Despite the banking crisis and the misery that went with it, we still assume that we can blindly trust the financial institutions. On top of that, the federal reserve banking system is a system that failed. For more information about what money really is, you can take a look at this video: https://www.youtube.com/watch?v=B1jfQtJ3dxU&feature=youtu.be&fbclid=IwAR3X4Byp3bP3DFeam9iWZ4A82ivQVnVJNrvEqBposcgtwDso3n2XO4gcXWg

Bitcoin’s white paper is an innovative work that will go down in history as the start of a whole new world. https://bitcoin.org/en/bitcoin-paper

The Ethereum network.

While Bitcoin can only function as a digital payment method, ethereum has another goal in mind, a platform for decentralized autonomous organizations (DAO) and programmable transactions. The latter is also known as “Smart Contracts”. A Smart contract is no more than the digital version of “If this, then that”. For example, if you have read this document completely, you will receive 1 Bitcoin from me. You program this in advance and these actions are automatically executed upon completion, without having to be checked.

The altcoins.

Besides the Bitcoin an Ether, there are 2000 other altcoins. Altcoin is the term that is used for all coins besides Bitcoin. Each type of coin serves its own purpose within the created network. Some altcoins are made just like the bitcoin for carrying out financial transactions. Another can be used as a medium for data transfer of contracts. The organization that brings out the currency often links this to a utility that the associated company will deliver in the future. We also call this the utility tokens. In addition, there are security tokens, which represent a share in a company. The most famous altcoins are; XRP, EOS, XLM, MONERO, BCH, LTC and ADA.

In addition to the coins just mentioned here, there are so many other applications, each with its own philosophy on how they will improve the world by applying the blockchain.

Summary

We can imagine that you had to look back a few times when reading the above information. Therefore, we will briefly summarize below what the most important elements of blockchain technology are.

1. The blockchain network: A decentralized distributed ledger

2. Cryptocurrencies: Digital payment units representing value on the blockchain

3. Nodes: Computers within a blockchain network

4. Dapps: Decentralized applications on the blockchain

5. Smart contracts: Transaction protocols that execute the conditions of digital contracts

What are the key benefits of blockchain?

1. Preventing fraud. Anyone who is in the network can see and verify all transactions.

2. Lower costs because intermediaries are no longer needed for transactions. The functions of notaries, accountants, banks and some governments will change.

3. Increased security because the network can not be laid down if one link fails. That is the case with a data center of, for example, a bank.

4. Increase certainty through the use of independent technology. As a result, you know for sure the status of properties and transactions without there being an interested third party who determines this.

Conditions for applying blockchain

One of the major problems facing the blockchain market is its correct application. What we see more and more in the world, is that companies are looking for a problem for their solution. This creates totally unnecessary concepts that use blockchain where this is not necessary. Actually, it is very simple, blockchain is only useful if the following conditions are met.

1. A database is required

2. Several parties want to add data without having to trust each other

3. A trusted third party is not desirable or necessary

4. Validity, transparency and safety are important

5. Need for objective representation of facts