Introduction
What is blockchain technology?
"The next big thing"? Are you missing out on a golden opportunity with startups seeking investment in blockchain-based companies? We answer these questions and more in this article of introduction to blockchain.
Today's topic is the exciting world of blockchain and blockchain technology.
I hope by the end of this video you have understood exactly what blockchain technology is and why it is really hard to separate it from Bitcoin.
How Blockchain Technology Works Before we can understand what problem it is designed to solve, let's take a step back and ask the question. Or vote in an election. How do you determine if it's valid?
What is the answer?
We are recording it. For example, each dollar bill has a serial number recorded by the bank. The driver's license number is recorded by his DMV, and voting records are used to track who voted and who didn't, so the same person can't vote for her twice.
If you wish to verify the authenticity of a document, please contact the competent authority. There are even notaries, people approved by governments as witnesses to prove and record the validity of information and identities.
It turns out that all these mechanisms have one thing in common.
They are all centralized. That is, there are central authorities, such as banks, government agencies, or persons authorized to issue and verify information. These central authorities have many powers.
So what if one of these authorities wanted to change the facts, or change the story a bit?
It may sound far-fetched, but even our world history is history It's just a record centrally managed by the house
The saying "History is written by the victors" teaches us that the facts can be distorted by those in power.
If that doesn't seem possible, here's a working example.
Most money today is just a record of who owes what to whom. The 2008 subprime crisis gave nearly 1,000 U.S. companies more than her $630 billion, which never existed before. In other companies, the debt has been completely eliminated.
While some argue that this relief is justified, it cannot be denied that someone has decided to change the record of the amount owned and owed.
This is why Bitcoin was born.
This was the first form of currency that eliminated the need for a central authority.
His records are kept by everyone, not just the central bank. And if everyone tracks it down and confirms the facts. This means you can no longer change your trading ledger if something doesn't fit or because it's more convenient.
Need to start offering accounts. But money isn't the only thing where decentralization can play a role.
Remember the big encyclopedias we relied on for our research?
Encyclopedia Britannica employs 100 full-time editors and his over 4,000 contributors and is considered an authority on knowledge published something.
Imagine the power the editors of these books have to decide what is worth mentioning, condemning, condoning, or ignoring
Well, the final volume of Encyclopedia Britannica was published in 2010.
Information is now more decentralized, with more than 130,000 editors managing various Wikipedia pages. All changes are public and available for everyone to review, so the risk of one of them going unnoticed is much lower.
Decentralization reduces the risk of corruption, fraud and manipulation. Blockchain technology is a new and innovative way to implement decentralization.
So, blockchain technology is the solution to the problem of centralization.
This is a system for everyone to keep records without the need for a central authority. It is a decentralized way of keeping a ledger and virtually impossible to forge.
So, with so many eyes watching and checking everything that's going on, it's very difficult to break the rules without realizing it.
Why It is called Blockchain?
You may be wondering why it is called blockchain. Suppose someone maintains a common ledger containing many pages of records. Each page begins with a summary of the previous page. If you have changed any part of the previous page, you should also change the overview of the current page. Pages are actually linked or chained. Technically, the pages are called blocks. And since each block is linked to the data of the previous block, we have a chain of blocks, a blockchain.
Many believe that the mysterious inventor of Bitcoin, Satoshi Nakamoto, invented blockchain technology.
Technically, he only created Bitcoins, the first real implementation of it. In fact, the term blockchain is not even mentioned in Satoshi's original white paper. Blockchain, he says, is a “chain of blocks.”
Now that you know what blockchain technology is, you still needs the answer to two key questions. How does it really work and will blockchain change our future?
How does Blockchain work?
Let's start with the first question. Another way of saying this question is:
How can we create a system where anyone can create, verify and update records? There are his four elements necessary for a blockchain to actually have a life of its own.
Peer to peer network:
The first thing needed to support a blockchain is a peer-to-peer network. It is a network of computers, also called nodes, with equal rights. Anyone can use it. It's basically what we already have on the internet today.
This network is required for remote communication and data exchange.
Cryptography:
The second factor is cryptography. Encryption is a technique for secure communication in hostile environments. You can verify your message and prove the authenticity of your message, even with malicious players. Encryption is required because of the first factor.
Remember when I said anyone can join this network? It's good to be able to communicate, but you have to make sure that the communication is consistent.
Algorithm:
The third element is the consensus algorithm. You can replace the jargon "algorithm" with "rule". In other words, you must agree on rules for how new pages, also called blocks, are added to records. There are many types of consensus rules. For Bitcoin, we use a consensus algorithm known as Proof of Work.
This algorithm states that in order to be entitled to add new pages to the ledger, someone must find a solution to a math problem that requires computational power. Computers on a network perform calculations to solve math problems, but they consume a lot of energy in the process. In other words, they do a lot of work.
If one of them finds a number that solves the problem and displays it on the network, they are essentially showing a "proof of work".
Think of this as Node's way of saying:
"Hey, I've spent so much energy trying to solve this problem here first that I deserve to write the next page." There are other consensus algorithms that don't require that much power, such as This is the type of algorithm used by the Bitcoin blockchain.
Different algorithms have their strengths and weaknesses, but to run a distributed ledger you need to decide between them. Otherwise, it will be very difficult to reach agreement with so many people on your network. Finally, the final element is punishment and reward. This element actually comes from game theory and makes sure it's in people's best interest to always play by the rules.
So far, we've set up a network where we can communicate securely and followed a set of rules to reach consensus. Now, let's glue these items together by keeping our records and rewarding people who help us adding new pages. This reward is a token or coin awarded each time consensus is reached and a new block is added to the chain.
Rewards and Punishments:
On the other hand, a malicious person who cheats or manipulates the system can lose the money spent on computing power or take away the coins.
Finally, it is important to remember that punishment and reward systems influence psychological behavior. Change the rules of the system from something you have to follow to something you want to follow because it is in your best interest to follow them. This is just a very general description of what blockchains are made of.
Now we have the four ingredients for building blockchain technology: peer-to-peer networks, cryptography, consensus algorithms, punishments and rewards. However, there is a fifth element that cannot be synthesized in practice. on sale. You can have a group of 5 people sharing a ledger using the consensus algorithm, but it's not really decentralized because there aren't enough people participating in the system.
Moreover, without adoption, our coins have no real value, and his fourth element of punishment and reward is less effective. Only when a critical mass of users will be reached will the blockchain become truly decentralized and immutable.
And at this point, the coins on this blockchain usually start to appreciate in value. It's hard to say what triggered the mass market adoption.
For bitcoin, it really started with its use on the dark web, where people used bitcoin to pay for drugs and other illegal things. I was.
However, since then, more and more people have started exploring Bitcoin and blockchain and realizing the benefits they offer. actually or as an investment
Now you know the five elements of a truly open, public, decentralized blockchain.
To date, only a handful of blockchains with truly independent participants over 1,000 can be considered decentralized as such. Bitcoin, Ethereum, Monero, etc.
Ethereum:
If you think implementing a blockchain sounds like a lot of work, you're right. But this is where Ethereum comes into play.
Ethereum is a DIY blockchain with all five of these elements already in motion. Just build the appropriate solution on top of it. But that's a whole other Whiteboard episode that you can watch later. Now let's move on to another term that you may have heard before. A private or closed blockchain. The term refers to companies that vette and limit the players who can join the blockchain. It's a bit like how the Internet, which is open to everyone, differs from an intranet (the internal network of computers in a company).
I think some companies see value in running a private blockchain to improve their internal processes, but it has nothing to do with decentralization, so it's not exciting. . To emphasize this a little more, let's compare open public blockchains with closed private blockchains. Public blockchains are open to everyone across borders and across borders. It's censorship-resistant and doesn't require a third-party provider. It's also neutral - there are no 'good', 'bad', 'illegal' or 'legal' deals, only 'valid' or 'invalid'.
Private blockchains, on the other hand, are restricted to authorized participants only and managed by a small number of entities. In the words of Andreas Antonopoulos, most private blockchains don't actually require a blockchain, just a shared table between participants. The whole idea of blockchains is to decentralize the process through the general public, which is the exact opposite of what private blockchains do.On the other hand, the characteristics of public blockchains create enormous advantages. .
No single point of failure.
Records are immutable, also known as tamper-proof.
Finally, because it is censorship-resistant, records cannot actually be deleted or prevented from being published as long as they comply with the consensus rules.
One more important question before we end today's lesson –
Is blockchain technology the next big thing?
I think there is When I hear about such companies, I usually ask two questions.
Nothing too disruptive here unless you're using a public blockchain.
Then do they need blockchain?
At the beginning of this lesson we talked about the dangers of centralization.
But these risks only make sense when the stakes are high.
For example, the lines to the pharmacy are centrally managed, but I don't really care because it's less of a problem and more efficient.
Blockchain technology is very decentralized, but is very inefficient, slow and energy consuming.
For example, the Bitcoin network takes an average of 10 minutes to confirm a transaction. Not ideal waiting time to buy coffee at 7-Eleven
The only reason to use blockchain technology as a solution is if the problem really is centralization.
If you don't need to decentralize something, you probably don't need to use blockchain technology and are better off with a centralized solution.
In fact, that would work better.
In summary, blockchain technology is truly disruptive, but there are only a handful of use cases that actually require it at the moment.
So the real question is: At this point, is our world ready for more complex blockchain implementations than Bitcoin already offers?
In the early 2000s, many Amazon, Google, Facebook did not quite understand the changes they presented. Today many of these blockchain startups face the same fate.
I hope you now understand what blockchain technology is. This is an open, censorship-resistant way of keeping records of everyone ,making forgery virtually impossible and solution to the centralization problem.
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