This summer, we had a talented young intern join us named Eva Francis! She helped with social media, app ideas, and is a great writer. We asked her to explain bitcoin and blockchain to us. There were no other guidelines. Here’s what she wrote.
The first real mention of something like a blockchain was in 1991, introduced as a way to store digital information so they could not be tampered with. But it was never really used until a person or group known as Satoshi Nakamoto said, “Hey, let’s use this idea to make a digital currency!” And thus, bitcoin exists, a digital currency that has very secure data. How is the data kept secure? It’s all in the definition of a blockchain.
First, to know what a blockchain is, you must understand what a block is. A block is a data container that contains 3 pieces of information because a block is 3 sides. Well, it’s 6 sides, but you only need to draw 3 of them to make it look like a block on a 2D piece of paper.
The first piece of information is the data a block contains, which can vary depending on what the blockchain is used for. In the case of Bitcoin and stuff similar to Bitcoin, it basically says “Hey, this person sent this person [insert amount of money here]” which means it contains the sender, the receiver, and the amount of whatever juicy currency the app uses.
The second piece of information is a weird, gigantic sequence of random numbers and letters that is special to that block. This bizarre sequence of numbers and letters is called a hash, and it basically works as the identity of the block, gives it a name and uniqueness that no other block can have. One reason why the blockchain is very secure is that changing anything within the block also changes the block’s hash. If a block’s hash is modified, it’s not considered the same block anymore. Hashes are how people can detect changes to blocks, so it’s pretty useful.
The third slice of info is the hash of the block before it. Since the blocks are within a chain/link, there is always a block before it unless it is the first block of a chain (also known as the genesis block), so the block will also store the previous hash of a block. This is needed so if any block has tampered data it can be detected since if anything is changed within the block, the hash will also change, which means the block following it will have an invalid hash of the previous block and thus make all blocks following invalid. It’s such a simple yet useful technique. But just in case, there is even more security involved.
Let’s say the person tampering with the blocks REALLY wanted to get away with this, so they said, “You know what? Let’s change the hashes of ALL the other blocks following it to make the chain valid again, it sounds like a great idea.” But little do they know, there’s this other piece of security called proof-of-work, which slows down the process of new blocks being created. Bitcoin decided that about 10 minutes was enough for the block creation process. So I don’t know about you, but if I were to tamper with a block, I would not want to have to wait an entire 10 minutes every single time I tampered with another block.
Still, Nakamoto had to be safe and assume that there just might be one person out there who has a ton of time on their hands and decides to wait a full 10 minutes to tamper with every single block. So, in order to have EVEN MORE security, it’s been agreed that the Bitcoin network should not be run by just Nakamoto, but rather the entire Bitcoin community, making it decentralized so it can be run by the people rather than being run by something more significant, like how the U.S. dollar is backed by the U.S. Government.
This allows a peer to peer (P2P) network to form, and anyone can join it. Whoever is within this network gains a full copy of the current blockchain, and thus meaning that together, the network can make sure things are still in order. This also allows the network to approve of new blocks created to make sure they have not been tampered with. If more than 50% of the network believes that the block is valid, it will then be added to their own copy of the blockchain.
The people in the peer to peer network of Bitcoin are considered Bitcoin Miners because the people who are a part of the peer-to-peer network are rewarded with coins for their work on validating blocks, how nice! This means that to tamper with a block, you must redo the proof of work, change all of the blocks that follow, and get over 50% of the peer to peer network to validate your block, which is nearly impossible to accomplish.
Another unique thing about the currency of bitcoin is that it is considered to have no value. This does not mean it’s not valuable, it simply means that since it is not backed by anything, there is no official label to how much 1 bitcoin is worth, and the value of a single bitcoin really depends on the person you are speaking to and the current time. Some may say a single bitcoin is worth a dollar, others may say it’s worth 3 dollars. How much a bitcoin is worth also depends on the timeframe, since it behaves a bit like stocks. The price depends on the bitcoin community, traders, and how much electricity it takes to mine it. It’s also scarce. Bitcoin is programmed so that within a few years, no more coins shall be generated, most likely increase the value of a currency. Just make sure you don’t invest too much money in it since the value is still uncertain… I would rather you not have to sell your home just for some bitcoin currency.
Using all of the security within a blockchain makes it easy for data to be secure and untouched, and blockchain could even be used not just by cryptocurrencies, but also to store unique data like medical records and can even be used to do big businessy stuff like collecting taxes and storing personal data. Many new blockchains are appearing but unlike Bitcoin which uses Proof-Of-Work, many are using Proof-Of-Stake like EOS or Casper. All in all, blockchain is how bitcoin and other cryptocurrencies transfer their currency safely and securely to make sure no little hacker goblins can get into your stuff.
Written by: Eva Francis — 14 yrs old