Blockchain and Bitcoin for Babies

John
John
Sep 5, 2018 · 4 min read

Now Bitcoin is trading at $7,371. How could a line of code is even worth more than a second-hand car? This article is a ‘for-dummies’ introduction of Blockchain and Bitcoin. There is no guarantee that the description and definition is precise and accurate, but nah, babies don’t really care.

What is Blockchain?

A blockchain, originally block chain, is a growing list of records, called blocks, which are linked using cryptography.

This simple, straight forward and conclusive definition is given in Wikipeida, Blockchain is a distributed ledger technology (DLT) compositing old-fashion technologies.

What makes Blockchain different?

Traditional Banks as Intermediary

As an owner of traditional bank accounts, you are paying anyone for a good or service. You simply send a command to your bank, and the bank will verify your identity via your PIN or passport, then the bank will do the transfer for you. This is a classic centralised organisation flow chart. In this case, the bank, as a third party or a middle man who acts on behalf of you, directs your money to someone you would like to. This is how human behave in a long long history. However, what happen if the bank go bankrupt? In Australia, government only guarantees $250,000 for single account given the bank is insolvent.

Broadcasting to the Crowd

Unlike the banking system, Blockchain is a decentralised ledger system which is recording the transaction in different nodes. It spreads the centralised risk therefore there is no such default risk as bank insolvent risk. It also increase the efficiency when you are doing transfer since there is no need for clearing house which banks require. However, without the authority as an intermediate, how can the counter party might not admit that they receive the money. There are some features that can solve such problem:

  1. Decentralised ledger record keeping. When Amy makes a transfer to Bob, and you shout to the crowd ‘I transferred $100 to Amy!’. Everyone is picking up his pen and write down the sentence ‘AMY TRANSFERRED $100 TO BOB’. This record has been recorded in hundreds of thousands of books which is nearly impossible to change. Again, this is Blockchain for Babies, not an accurate and precise academic essay.
  2. Now, you will find out that ‘$’ doesn’t really matter in this Blockchain system. You would think of ‘Bitcoin’, which is a unit in a commonly known blockchain system.
  3. So, bitcoin has limited supply of 21 million units. Someone would shout that ‘I have all those bitcoins!’ then he become the richest guy in the world.? That’s not gonna happen. When people doing transaction in the Blockchain, the record would always show that ‘this transaction, say #002, is based on last, say #001,transaction’. This could solve the problem that people cheat on their historical record. Because the hundreds of thousands of books have record the history.
  4. Why people will do the record keeping for you? Yes, the pen and paper worth something, especially when there are 100 million transactions which are waiting for you to write them down. In DLT system, every sentence you shout, you are paying a fee. This fee is collected by the first one who write down your transaction. So that people have incentive to write down the transactions for you now. This mechanism is called ‘Mining’.
  5. Now, not all recorders can receive the fee. Only the first one who write down the transaction will receive the reward, and all the people will recognise this transaction has been recorded and waiting for the next transaction. This is all about speed. In Bitcoin, it’s called ‘hashrate’ of your computer, measuring how fast is your computer’s performance.
Blocks are chained up by the newest block

In summary, Blockchain is a decentralised ledger system which is recording transactions. Bitcoin is an intuitive application of Blockchain, which is a digital cash payment system. Since transactions are recorded in hundreds of thousands of books, that is nearly impossible to change the transaction history.

Blockchain Age

Industry News

John

Written by

John

Blockchain enthusiast

Blockchain Age

Industry News

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