Blockhain 101: Blockchain for Dummies

Blockhain 101: Blockchain for Dummies

Much has been said about blockchain, about how it is the technology of the century and the future, and about its potential and how it can disrupt several niches ranging from supply chain management to finance.

It has gathered a lot of traction and criticism from high-profile individuals and institutions, ranging from J.P. Morgan of Chase Bank to the average John on the street to the average Mike on Twitter.

An important use case of Blockchain: Cryptocurrency, especially its grandfather, Bitcoin, has also made waves across headlines and different social media feeds, as it gained an all-time peak high of 67,000 USD some months ago.

However, to many people, the mention of blockchain equals Bitcoin and cryptocurrencies, a case of a mix-up between technology and its use case. What is the difference between blockchain and cryptocurrency?

Will I be able to understand this?

Don't worry. It will be interesting. I promise!

Blockchain is a decentralized and distributed public ledger of transactions that imminently records data or transactional information so that recorded information can't be altered or modified. It is a distributed database that is shared among all connected computer networks, also known as nodes.

A blockchain can be thought of as an electronic database that holds information but in a digital format. The innovative idea brought about by a blockchain is that it ensures the accuracy and safety of data records and establishes confidence without the requirement of a third party or centralized bodies that can be relied upon.

Do you know Google doc.? Yes, the same Google doc.

Reductively, the Google doc is the best illustration tool and model for comprehending the know-how and what blockchain technology is. On Google doc, when we make a document and then share it with a group of colleagues, the document is shared with everyone rather than copied or transferred to any recipients. This results in the formation of a decentralized distribution of the document, granting simultaneous access to everyone on the document. This document (now a live document), grants everyone the ability to see the changes made by any party; not only this but also the document history of those changes may be viewed at any time by anyone. This makes the process of making changes entirely open and accessible.

The blockchain is, without a doubt, more intricate than a Google Doc; yet, using the latter as a comparison helps to illustrate three key concepts underlying the blockchain technology, which include:

• Decentralization

• Distributed Public Ledger

• Immutability

Decentralization

Decentralization is the process, act, or system of taking away governance or authority from a centralized entity and handing it over to every user in an ecosystem. It conceptualizes disintermediating the dominance of a powerful central body as oversight and eliminates third-party interference.

In the case of blockchain technology, the decentralization feature keeps it aloof from being controlled and censored by a government or a handful of users who stand as middlemen or third parties.

The information recorded on the blockchain technology is not stored centrally on a single server or archive; instead, it is distributed across all nodes—interconnected computers—in its ecosystem.

Distributed Public Ledger

A ledger is a record book that records day-to-day transactions, from buying to selling. A public ledger can be regarded as an open ledger available for every Tom and Harry to study and scrutinize.

The blockchain is referred to as a public ledger because all transactions recorded on it as a ledger are distributed across all nodes in its ecosystem. Every node on a blockchain gets a replica or duplicate of every transaction recorded. This is why blockchain is immutable.

Immutability

Immutability is the ability of something not prone to being changed or manipulated. Transactions recorded on the blockchain network are immutable, i.e., they can’t be altered, modified, or hacked; once it’s recorded, the data stays forever.

Since blockchain transactions are time-stamped, it is almost impossible to be hacked or changed unless the hacker can hack 51% of nodes on the blockchain at the same time and alter the recorded transactions at the same time (which is nearly impossible).

Blockchain technology is sometimes referred to as Distributed/Decentralized Ledger Technology—DLT—due to the earlier features discussed. The name “blockchain” was coined owing to how transactions are recorded.

Transactions are recorded every second on a blockchain; during this, records are taken into account with respect to their time frame. All transactions taking place are recorded chronologically and cryptographically stored on top of one another in a block.

If a block has been filled with records of transactions, another block is created to continue taking records of transactions.

The newly created block will have a part of the last transaction recorded in the previous block as its first transaction; this will create a chain, linking both blocks together. It goes for all transactions recorded in blocks continuously to form a Blockchain. Do you understand now?

Many companies and organizations have developed their blockchains to serve various use cases. This has led to the emergence of quite a number of blockchains like Bitcoin, Ethereum, Solana, Tron, Polkadot, and so on.

Blockchain has hitherto been employed in various sectors cutting across medicine, logistics, real estate, supply chain, banking, and finance, amongst a few. The financial use cases of blockchain brought it to the limelight with the advent of cryptocurrency

What is Cryptocurrency?

Cryptocurrency is a virtual or digital currency that solely depends on cryptography technology to function. It is a form of currency inclined to blockchain technology as a native token. Like every nation has its generally accepted fiat currency, every blockchain also has its native token, which serves as a payment medium within its respective blockchain ecosystem.

Although some tokens were developed on a single blockchain, this is only common and possible with blockchains with smart contracts—a self-executing and self-enforcing set of pre-defined rules or agreements encoded in a computer code- chiefly, the Ethereum solidity language.

Cryptocurrencies can be gotten through mining or exchange platforms, like Binance and CoinBase, to mention a few, by exchanging them with fiat money.

Blockchain technology birthed cryptocurrency as it serves as the crypto bedrock. Bitcoin cryptocurrency is the first and most popular cryptocurrency that brought both crypto and blockchain to the limelight in 2008.

Bitcoin was developed by a developer with the pseudonym Satoshi Nakamoto. Several cryptocurrencies and blockchains have been developed since then; thousands of cryptocurrencies and tokens are currently in circulation.

Cryptocurrencies, or coins, are of two kinds, which are:

Stablecoins

These are crypto coins pegged to fiat or physical money value, i.e., they have the same value as the original physical currency. Examples are USDT, DAI, BUSD, USDC, TUSD, and their ilk. These mentioned coins are less volatile and are usually pegged to the U.S. dollar.

Unstable Coins

These are volatile crypto coins or tokens; their respective price varies due to complex market factors and marketing hype. Generally, cryptocurrencies are volatile digital assets that can rise and fall in price or value within seconds or minutes. Examples of these coins are Ethereum, TRX, XRP, XLM, Dogecoin, Litecoin, and other altcoins— all coins except Bitcoin.

What are the Differences Between Blockchain and Cryptocurrency?

In a tabular form,

What are Tokens?

Crypto tokens are digital assets that are developed in a smart contract of other blockchains. Only blockchains that feature smart contract enables other tokens to be built on them aside from their native crypto. An example of such a blockchain is the Ethereum blockchain. The Bitcoin blockchain has no smart contract and doesn’t allow another token to be built on it.

There are two kinds of tokens, namely:

1. Fungible Tokens: These are tokens that can be interchanged or exchanged for another of its kind or equivalent. 1 BTC is equivalent to another 1 BTC and can be exchanged for one another. Examples are USDT, TRX, BNB, and so on

2. Non Fungible Tokens: Non-fungible tokens—NFTs— are unique and customized digital assets that can’t be interchanged with one another. An NFT can be any digital piece like Arts, Images, documents, journals, music, etc. An NFT can’t replace another NFT because each has properties that are peculiar to them and make them unique.

Conclusion

Blockchain is different from cryptocurrency in that it is a public ledger that records transactions. It is a kind of decentralized storage that extends beyond finances. On the other hand, cryptocurrency is a form of money in the digital sphere. It is one of the numerous use cases of the blockchain in the financial industry.

Photo by Robert Zunikoff on Unsplash