How Blockchain Works (A Beginner’s Guide)

Team Luno
Team Luno
Oct 26, 2018 · 6 min read

It’s still valuable to empower yourself by learning the basics, so you can have a better understanding of this important new technology.

Here’s the Luno guide to Blockchain for beginners.


The Bitcoin Blockchain

For many years, people tried to create digital currencies. However, they always ran into one big problem.

They wanted to subtract trust from the equation and still have the total equal security and stability.

Lots of knowledgeable people were kept awake at night by this conundrum. Then in 2007, a person or group going by the pseudonym ‘Satoshi Nakamoto’ devised a solution. In 2008, subscribers to a cryptography mailing list received a white paper entitled ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’ This unassuming PDF, written by someone no one had heard of, contained the answer: Blockchain.


The clue is in the name

“Bitcoin or other digital currency isn’t saved in a file somewhere; it’s represented by transactions recorded in a blockchain.” ― Don Tapscott, Blockchain Revolution

A ‘node’ is a computer that runs specialist software as part of the Bitcoin Blockchain.

Together, thousands of nodes across the world form a decentralised network. It isn’t owned or controlled by any single person or group, they all share ownership.

That’s not the whole story

Nodes serve another vital purpose. They verify transactions and confirm that cryptocurrency hasn’t been double spent. Once the majority (more than 50%) of nodes reach a consensus that they can authorise the transactions, they’re recorded. This creates a permanent, secure, unbiased record.

Blockchain is like a database, shared between lots of people, and constantly updated

Since the Blockchain is public, you can look back at a record of all the Bitcoin transactions ever made. You might have heard it described as a Distributed Ledger Technology (DLT.) Nakamoto created it to give the world a way to spend money without centralised control or limitations.


Why Blockchain is amazing

“Blockchain solves the problem of manipulation… I think the technology, if we do it right, may go in history books.”- Vitalik Buterin, founder of Ethereum


Uses of Blockchain

“The blockchain keeps everyone honest, and a whole layer of banking bureaucracy is removed, lowering costs.” ― Paul Vigna, The Age of Cryptocurrency

  • Tracking digital rights
  • Online voting
  • Insurance contracts
  • Identity documents
  • Supply chain tracking

The limitations of Blockchain

As a piece of technology underpinning cryptocurrencies, Blockchain works pretty well. There are still creases to iron out, yet we’ve made a lot of progress and it’s important to remember no technology is ever perfect right from the start. However, Blockchain does have its limitations.

Luno Publication

Luno.com

Team Luno

Written by

Team Luno

We write about all things crypto. Our articles convey the views of Luno and the many unique opinions and characters within our team. Tweet us @lunomoney

Luno Publication

Luno.com is a global cryptocurrency company, with over 2 million customers in 40 countries. We make it safe and easy to buy, store and learn about BTC and ETH. We strive to educate, and open the doors for dialogue and discussion on cryptocurrency, fintech, finance, and more.

Team Luno

Written by

Team Luno

We write about all things crypto. Our articles convey the views of Luno and the many unique opinions and characters within our team. Tweet us @lunomoney

Luno Publication

Luno.com is a global cryptocurrency company, with over 2 million customers in 40 countries. We make it safe and easy to buy, store and learn about BTC and ETH. We strive to educate, and open the doors for dialogue and discussion on cryptocurrency, fintech, finance, and more.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch

Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore

Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store