What is Blockchain? A Super Easy Guide for Stupid People
Hey dummy, join the club. Last night I spent hours watching documentaries on blockchain. Why would I do that? Because I read someone spent $1.5 million on FAKE virtual land. Of course, I’m not bitter. (Actually, I’m very bitter. And confused.) I had to find out what is blockchain — that’s the root of it all. Plus, I’m now going to make it easy for you to understand.
What about the $1.5 million for fake video game land? Later this week, I plan to answer that question. Also, I’ll talk about NFTs (non-fungible tokens) and crypto collectibles. But before we get into that — and why Kings of Leon released their latest album this way — first we need to understand what is blockchain.
What is Blockchain?
For us old people, blockchain is a ledger. In other words, it is a record of something. For instance, my wife recently ordered me a new Nintendo Switch and the game Animal Crossing. (Will this affect my writing productivity? Probably!)
When Lyndsay ordered my Switch (I love her!), many “people” created a ledger:
- The credit card company recorded the transaction.
- The payment processor made a record of it.
- The shipping company noted the delivery choice.
- The store recorded the sale on its ledger.
- I typed about it here.
A ledger is a recording of something happening. Most of the time, a ledger is meant to record money transactions. But a diary is a ledger. Also, a collection of recipes is a ledger.
Is a ledger a database? Yes! But what is the difference between a spreadsheet and a database? A spreadsheet organizes information in a table — one sheet. But a database shows how lots of different information is related to each other. In summary, the keyword is “related.”
In the example of my wife’s Switch purchase, a database relates all the ledgers together: what store, what product, which customer, what credit card, etc. All of the ledgers could be separate sheets, but a database ties it all together. In other words, relatable.
But what is blockchain?
Now you put your information into a box. In other words, you take all your ledgers, throw them into a box, and then tape it up. Then you ship your box off, where a company (like Iron Mountain) adds your box to all the other boxes you sent them.
What is blockchain? A blockchain is a digital ledger. You enter information into the ledger, and the computer puts the information into a box, also called a block. Once the block is full, the computer seals the box. Then the box is added to other boxes, which is called a chain — a chain of boxes. In other words, it’s a block chain (now called blockchain).
Differences between a pile of boxes and a blockchain
Do you know what can happen to a pile of boxes?
- Someone can go in and take, change, or destroy the information. Do you remember Enron? Shred, shred, shred.
- The boxes are difficult to access. Probably why the word “audit” scares the shit out of people.
- Fire! Hurricanes! Tornadoes! Rambo!
Do you know what can happen to a blockchain?
Nothing can happen to the information inside of a blockchain. It is a permanent record that nobody can change, alter, or delete. Also, blockchain is super secure and super accessible. In other words, anyone can view the ledger at any time, as long as they have the correct access.
This leads to two questions. First, who manages all this information? Second, how is this information kept secure?
First, we all manage blockchain. To understand this, let’s use an analogy. Imagine having a million-piece puzzle. Then, there are a million people putting together this puzzle. Each person has one piece. This sounds like a nightmare, right? But a computer program assembles the pieces.
What is blockchain? Blockchain is a large puzzle of information that is divided among the computers of the world. Like the internet, blockchain is carried by the world. In other words, one person or company isn’t responsible for maintaining it. Furthermore, like the internet, you can’t turn it off.
Second, how is information in blockchain kept secure? Because the information in a blockchain is spread out in millions of different pieces, the program to assemble these pieces is extremely complicated. Therefore, the code is the most difficult code in the world to crack. It has never been cracked to date.
Blockchain is like email. It is information that is sent to an intended recipient. But unlike email, blockchain is extremely secure, making hacking nearly impossible. Only the people involved can see this information. Again, once the information enters the blockchain, nobody can change it.
What is blockchain, Bitcoin, and Ethereum?
What is blockchain’s purpose? Again, blockchain is a ledger of information. In other words, something happens, then someone records the event into the blockchain. The blockchain is there as a permanent record.
What is Bitcoin? Bitcoin is a ledger — a recording — of a set amount of something that someone created. Was it created out of thin air? Yes!
To summarize, the person who created blockchain (a secure ledger shared by all the world’s computers) recorded that he created 21 million bitcoins.
- First, the creator (we don’t know who) made the blockchain ledger.
- Next, the creator recorded that he is adding 21 million bitcoins to the ledger.
- The bitcoins are not based on anything. In other words, they are simply numbers written into a ledger.
- To “trade” bitcoin, someone enters into the ledger that a certain amount of bitcoin now belongs to someone else.
- Remember, the ledger is secure, shared, and permanent.
Is bitcoin money?
Because bitcoin is limited in supply, people use it as currency. Even though bitcoin is completely made up and just a number recorded in a ledger, it is permanent, unchangeable, and secure. Therefore it is valuable.
Compare bitcoin to cash and currency (dollars). There is a difference! Cash is paper money. People assign a value to cash based on currency. However, people can exchange cash without an electronic record. Also, people can duplicate cash illegally.
Now, currency is different. Governments create currency and define its value. Currency is also completely made up. For instance, an economic recovery package (also called a stimulus) is a government adding more money. In other words, they add more numbers to the ledger.
Governments control currency. Cash represents the value of currency. However, sometimes governments revoke cash’s representation of currency. For instance, this happened in India. People had cash, but the government no longer accepted it as currency.
What are blockchain’s strengths?
Because everyone has equal power in managing the blockchain (everyone has their own piece of the puzzle), no individual holds power. Governments can’t control its supply or value. Furthermore, the ledger is secure and permanent. Only the people involved have access to its records, plus the records can’t change.
Big governments like the United States, Russia, and China, are looking into making a blockchain currency. But, the very definition what is blockchain makes this impossible. Blockchain is decentralized, making government control impossible.
Bitcoin is outside of the government’s control. Furthermore, bitcoin’s number is limited, and the people determine its value, and governments have no access to the ledger. For instance, we determine how much bitcoin a cup of coffee is worth. Then, we can purchase that coffee with only us and the coffee shop seeing the transaction (no banks!)
What is Ethereum?
Ethereum is a type of ledger on the blockchain. Remember, what is blockchain? A blockchain is a group of records stored in blocks that form a chain. Ethereum is similar, but the organization is a bit different. In other words, it is a different type of box: like a UPS box versus a FedEx box.
The actual forms that go into the box are called Ether. Because new forms are made all the time, there is no limit on Ether. Like bitcoin, it is extremely secure. But unlike bitcoin, there is no set limit.
Can Ethereum be a currency? Actually, ether could be a currency. While there is no limit on how much ether (the forms), the things we record on the forms are limited. For instance, titles to property, votes for elections, and ownership rights of art are recorded with Ether.
Therefore, the possibilities of Ethereum are limitless. We can have elections that are tamperproof and nearly instant. Or, we can have musicians make albums and sell digital rights directly to fans.
What is blockchain? A summary
What is blockchain? In its simplest form, a blockchain is a ledger. We record information, then that information goes into a box called a block. Then, once the block fills up, it becomes part of the chain.
A blockchain is recorded information that is secure, private, and permanent. Everyone, through the world’s computers, shares equal access and ownership to the blockchain.
If you have questions or need me to clarify anything, please leave me a comment below. Or, if you see something I should fix, let me know, too. I genuinely appreciate you reading this.
Originally published on author’s site.