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The blockchain explained simply

 

The blockchain explained simply
The blockchain explained simply

The blockchain explained simply - Become a financepreneur!

The blockchain explained simply

In most cases, the blockchain is a digital cash book in which all participants' transactions are recorded in chain blocks. Ideally, the blockchain, as in the case of Bitcoin, for example, is open-source and decentralised, in contrast to our existing monetary system. These two features guarantee a high degree of transparency and security. Currently, blockchain technology is mainly used in the context of cryptocurrency, but its field of application can be extended to all areas of information processing.

Definition of blockchain: What is a blockchain?

In the context of crypto-money, the blockchain is a public cash book in which everyone writes down what they owe to whom. Everyone can consult this cash book and therefore knows exactly who has sent how much money.


Imagine, you and your friends go on holiday together and regularly write down on a piece of paper who has spent how much money. At the end of the trip, you add up all the expenses and check who has paid more than the others. If you have paid too little, you put the difference in the communal pot and if you have paid too much, you take money out of the pot. A blockchain is exactly the same principle as this piece of paper but on a larger scale. It captures the expenses or transactions of all participants.


However, no user data is stored in the blockchain, only transfers from different accounts are stored. The account numbers themselves represent a string of 27 to 34 alphanumeric characters. Therefore, you cannot theoretically know to whom an account belongs.

2) What can a blockchain do?

As a neutral information processing system, anyone can join the blockchain and has the same rights. One could also say that :


For the algorithm, all men are equal.

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This approach is completely different from our previous monetary system which causes an unequal distribution of wealth. The blockchain is subject to various rules, such as that a transaction can only be executed if the funds are available (a "double spending" solution) or simply that no participant is discriminated against, i.e. excluded.


A special feature of the blockchain is that it is not dependent on a central supervisory body, such as a central bank. Trust is only guaranteed by the code itself based on rules, which nip attempts at manipulation in the bud. The blockchain is open-source and therefore constantly monitored by its participants. Due to their decentralised nature, there is also no central point of attack for hackers.


In addition to the use of the blockchain as a cash book, it can be used in almost every area of life. The fact that information is stored securely for eternity means that blockchain technology can be used in the areas of property rights or intellectual property, in the health sector (medical data), or in identity management (passports, driving licences and identity cards).


How exactly does a blockchain work?

A blockchain consists of a multitude of interconnected blocks of information. Each block contains a number of transactions, a signature from the previous block and its own signature. If you change a single character in a block, its signature changes completely. A retrospective manipulation would, therefore, be immediately noticed.


Participants in a blockchain are usually users, nodes and miners:


The users only want to use the blockchain for their own transactions and collaborate indirectly with the miners by making public their desire to execute a transaction.

The miners in turn accept these transactions and enter them in the next block. However, a block can only be added to the blockchain if a very difficult mathematical puzzle is solved by a miner. Once a miner solves this puzzle, he is allowed to attach the next block to the chain. All other miners will stop working on solving the puzzle and focus on solving the next puzzle to move on to the new block. With Bitcoin, the difficulty level of the puzzles changes every fortnight, which ensures that a new block is detected approximately every 10 minutes. 

This workload is also called "Proof of Work".

Above all, the nodes (nodes) ensure that the blockchain is decentralised. They store the complete transaction history (blockchain) and check the information of the other nodes. This ensures that all participants worldwide are "on the same page" of the cash book, i.e. they accept the same current version.

4) Conclusion

The Blockchain is a surprisingly ingenious invention that will revolutionise all areas of life. Above all, Bitcoin, Ethereum & co. has the potential to revolutionise the existing debt-based monetary system. For example, with Bitcoin's algorithm, the money supply is limited to 21 million Bitcoins, so there can theoretically be no more inflation. The blockchain represents the technological and cryptographic basis, which ensures that no one can manipulate the currency in its favour. A property that has only attracted the interest of central banks around the world.


What experience have you had with blockchain and crypto-money? We look forward to hearing from you!


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