Unless you have been living under a rock, you have heard of blockchain technology. You hear it often in tandem with cryptocurrencies such as Bitcoin. While blockchain plays a significant role in Bitcoin and other cryptocurrencies, this technology can go above and beyond. As these cryptocurrencies grow in popularity, so does the attention toward blockchain.
So how do you make sense of this innovative but complicated technology?
Our experts at BlockCard have put together the Ultimate Blockchain Tutorial. This detailed guide will teach you everything you need to know about blockchain technology.
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We suggest bookmarking this guide after you read it so that you always have it as a reference. As you will see, the tutorial is quite dense and may require multiple readings. But we assure you, it is not as complex as you may think. With a little bit of knowledge and strategy, you’ll be able to wield blockchain as a future-proof utility in no time.
The Ultimate Blockchain Tutorial: The Impact
When Bitcoin was introduced, it was presented as a decentralized currency. What does this mean? This means that Bitcoin would not be owned or managed by a single entity. The underlying technology to ensure the smooth and reliable transactions of Bitcoins and other cryptocurrencies is blockchain.
Here is the breakdown of what blockchain technology is and how it works:
What is Blockchain?
The simple definition of blockchain is that it is a series of blocks. These blocks contain data or digital information. Each of these blocks is connected, giving it the ability to transmit data to other blocks.
For the blockchain on which Bitcoin is run, each block contains information on a Bitcoin transaction – such as a purchase or an exchange. The combined blocks (the blockchain) is a ledger of all transactions that involve Bitcoin.
Related: How to Pay with Bitcoin
Where is Blockchain?
You are probably wondering, where can I find this blockchain?
The blockchain is found on everyone’s computer. For example, if you sell Bitcoin from your computer and your cousin who lives overseas purchases this Bitcoin from you, both of you have added to the continuous blockchain. There is no central location where the blockchain is found. It is found on every computer that participates in a blockchain-related transaction.
Public and Private Blockchains
There are two types of blockchains – public and private. Public blockchains are available for all to see and for all to use – with Bitcoin’s blockchain being an example.
Many companies and organizations use blockchain for keeping their records. These are examples of private blockchains.
The advantage of blockchain technology and why it has been embraced by the public as well as private entities is because they are secure and transparent.
Side Note: It is because of the fantastic features of security and transparency that blockchain has been met with some ire. It is because of this that governments have banned cryptocurrencies or left them unrecognized and unregulated. But as the popularity grows, some nations are slowly opening up as well.
To continue on that thread about security and transparency that we mentioned in our previous point, think for a moment about the online purchases that you already make.
When you purchase something from Amazon, you are putting your trust that Amazon will take your money, give it to the seller and then make sure that the seller will ship your order.
When you hail a ride from Uber, you are putting your trust that Uber will take your money and make sure that the Uber driver picks you up and takes you from Point A to Point B.
You will rarely find someone nowadays who feels uncomfortable making a purchase online. Online purchasing is more commonplace and more secure.
But incidents do happen. There is the possibility of hacking or the merchant fraudulently taking your money. The blockchain eliminates these incidents. There is no intermediary – you exchange directly with a peer.
Blockchain and Banking
Outside of cryptocurrencies, blockchain has significantly impacted banking. You may not realize this, but there is still a large population of the world who are unbanked.
The unbanked now have a system of storing money – in the form of cryptocurrencies – and securely exchanging and receiving them with others through blockchain. Realizing the power of blockchain, many banks are now adopting blockchain technology.
Side Note: As an alternative currency that runs on a reliable system (the blockchain), Bitcoin has helped vulnerable populations in times of economic crisis.
Related: BlockCard Supported Currencies
Online Data Storage
Consumers and internet-users have become very accustomed to storing our sensitive data online using cloud-based data servers. But like banking or online shopping, our cloud-based data servers are also vulnerable to hacking or misuse.
Blockchain allows transparency and significantly reduces any risk or vulnerable points in transferring data to a storage center.
Blockchain is not going anywhere. It is expected to disrupt other industries. One of the most exciting disruptions will be voting in elections or collecting surveys. When you purchase something with money (whether you are using fiat or cryptocurrency) you are essentially voting to exchange one commodity or another commodity or service. It is a transparent transaction.
Once blockchain technology is introduced in polls and surveys, it will make the process more transparent, more fair, and less prone to fraud.
Another industry will be supply chain management and logistics. Logistics is an industry that heavily depends on trust and contract law. Blockchain technology can record a public tracking of where an order is as well as the quality and authenticity of the products.
Blockchain is also expected to enter the Internet of Things (IoT) sphere. The blockchain will make it easier for IoT devices to communicate and share data – again on a record that cannot be tampered with.
The Ultimate Blockchain Tutorial: How it Works
Now that you know where blockchain is having a great impact, let us look at one of the fundamental aspects between the relationship with blockchain and Bitcoin (and other cryptocurrencies).
You have surely heard of mining within the context of blockchain. Mining, which is conducted by miners, is the installation and running of a particular software program on the blockchain.
Mining is an essential function to make sure the blockchain is running functionally. Just as a satellite connection is needed for ensuring access to the Internet, mining is needed for ensuring the running of the blockchain.
The group of computers that host a copy of the blockchain are referred to as nodes. Nodes validate the transactions that are conducted on the blockchain.
So how are new blocks added to the blockchain? A series of transactions are collected as data. This data is stored onto a single block. It is the miner who adds the block to the blockchain.
But before the blocks are added by the miner, the nodes confirm their validity before being passed on.
Now, what are the rules of blockchain? Each blockchain has a set protocol that is agreed upon. With the Bitcoin blockchain, the protocol is as follows:
- Every 10 minutes a new block is added to the blockchain
- Miners are incentivized with Bitcoin for mining
- The incentive rate reduces after every 210,000 blocks. This means that the finite supply of Bitcoin is 21 million
- Miners compete with each other by solving a difficult mathematical problem. The “winner” gets access to the next block to add to the blockchain
The requirement to solve the mathematical problem serves as a proof of work on behalf of the miner.
We have already mentioned the decentralized nature of blockchain. But now we will go into further details as to how this works.
The software that blockchain is operated with is run on several computers. Each computer runs the same software. If one computer were to stop running, the blockchain does not stop functioning. Even if all computers were to stop running, the blockchain’s data is stored on ledgers.
These ledgers hold a backup of the blockchain. So in other words, the blockchain, its data, and its assets (such as cryptocurrencies) do not disappear. This is what makes the technology very powerful. Particularly for Bitcoin, as long as you do not give away your private key, your Bitcoin cannot be seized.
Related: BlockCard – How it Works
The Ultimate Blockchain Tutorial: The Ledger
Now, what about the ledger? How does this work?
While miners require particular technology to mine Bitcoin, any computer can serve as a node. The nodes run the software which the blockchain runs on and constantly update the blockchain’s data.
The nodes in the blockchain model differ from the centralized model in that every node has the most up to date copy of the blockchain’s data. In the traditional centralized model, only one node has a copy of this data.
There are full nodes that keep an accurate record of all blockchain data. Lightweight nodes keep an accurate record of all recent blockchain data – usually not going beyond a few weeks.
The Ultimate Blockchain Tutorial: A Transaction
So how does a transaction work through the blockchain? This will vary depending on the nature of the blockchain and the industry, but we will use the Bitcoin transaction as an example.
Let us suppose that Bob (the sender) wants to send some Bitcoin to Tim (the receiver).
Bob accesses his Bitcoin wallet from where he can send Tim some Bitcoin. He enters Tim’s Public Key in the appropriate field. He also types in the specific amount of Bitcoin that he wants to send. He also has to type in his private key address. This confirms that he wants to conduct the transaction – this is what prevents his Bitcoin from being sent without his consent.
Before it gets sent, the transaction notification is sent to a miner. The miner charges a fee for the service and this gets taken out from Bob’s wallet. Bob is notified of the fee beforehand – so no surprise surcharge. Once Bob sends the Bitcoin, the nodes store the data.
Within seconds or a few minutes at most, Tim receives the Bitcoin.
This transaction is time-stamped and added to a block in the blockchain. This is the record that gets added to the ledger.
Public and Private Keys
And what are the differences between public and private keys? What is the difference between the two and why do we need them both?
The public key can be thought of as the bank’s routing and account number. You would provide this information to an individual or company when you wish to receive a payment to your bank account from them.
The private key can be thought of login credentials for your online banking account. You certainly would not share this with anyone else!
The public key is what records the Bitcoin transaction to the blockchain and the ledger. However, while the record is public – the individuals involved in the transaction remain anonymous thanks to the private key. The private key is needed for accessing functions on a Bitcoin wallet. Without it, one cannot conduct a transaction using Bitcoin.
It is crucial to note that private keys can never be recovered. If you lose your private key, you have lost access to all your cryptocurrency. If you were to share it with someone untrustworthy, you are giving them access to all of your Bitcoin assets. It is the same as giving your online bank account login credentials to a bank robber!
This may sound strenuous or scary but it is because of this strict rule involving the private key that ensures that Bitcoin is secure. It is because of these stringent rules that blockchain technology remains transparent while also remaining secure.
It is because of these features that have caused an embrace of blockchain technology – and the reason why this technology is causing a revolution!
Bet on the Blockchain
Now that you have read The Ultimate Blockchain Tutorial, you have mastered the basics of what blockchain is, how it works, and where it is going. Make sure you bookmark this tutorial and share it with others.
And be sure to read more great content on Bitcoin, Cryptocurrencies and Blockchain technology!
Ian Kane is the COO of Ternio, the startup dedicated to solving the issues related to blockchain scalability and payment utility of cryptocurrency.