About the series “What is blockchain?”
On a recent LimeChain company retreat, we asked some of the colleagues to explain to our newest team-member “What are blockchain, nodes, and blocks?”. As she is not a technical person and had no previous knowledge of blockchain, the explanations and results were amusing. Some started by “Imagine all computers in the world”, others decided to explain what “consensus algorithm” is? Her looks during this ordeal were fascinating and showed the confusion that is so so common when describing this complex technology to a non-technical person.
This and all subsequent article parts are my attempt to explain to you, my lovely non-techies, the world of blockchain. By investing your time in these articles, you will gain the understanding and confidence you need to navigate your way in this peculiar technology.
In my years of experience in explaining the blockchain technology to various people with various background, I’ve found that one technique of explaining the technology works best – “Teach me like I am five”. Expect the following to be an easy to read text, adding complex words to your blockchain dictionary only after they have been explained.
What is blockchain?
Let’s explain blockchain in a few words here and later on we’ll go deep into details.
Blockchain is a secure, decentralized, transparent, and verifiable system where values like ownerships, cryptocurrencies, digital assets, medical records, certificates, and many more can be exchanged. All these values are stored in a digital block, the blocks are linked together in a chain – blockchain. Blockchain is a shared peer-to-peer network where always updated ledger keeps track of all transactions and history for what has been exchanged between the participants in the network. The whole network is distributed between all computers/participants but NOT stored in just one place. This ensured that the data can not be changed without anyone knowing.
How was blockchain invented?
After the world’s latest financial crisis back in 2008, a white paper came out and quickly became famous. It was written this mysterious person called Satoshi Nakamoto explaining and introducing us revolutionary and new peer-to-the peer financial system. It demonstrated and presented the birth and the use of a digital cryptocurrency called Bitcoin. Many perceived this system as a better way of doing things and found a great way to get away from this centralized system. The technology that was invented to power this new system was called a blockchain. As we know it today it is an exciting technology that has massive implications and can no doubt change our lives for good.
Now, in this series of articles, we are going to talk about blockchain technology, how it works, and why it is so important in a really simple way.
Before going into details what is blockchain and explain how it works, let’s talk about the importance of decentralized technologies.
Why is blockchain so important?
The technology has been called many things – the next big thing after the Internet, revolutionary technology, the most important technology ever invented but it is one thing for sure – an astonishing technology with huge potential to greatly improve the way we do business between each other.
And here it comes, why is it so important? Many are the benefits of blockchain but here are some of the most important.
• Eliminating the middleman
• Reducing overall costs
• Process automation
Each one of these will be a subject of explanations in the articles below.
So let’s start. Good luck, and may the force be with you!
What are Nodes and Blocks in Blockchain
The blockchain is a network of special computers, called nodes. The nodes are accountants that maintain an accounting book, called a ledger. In this ledger, the nodes append transactions – sending/receiving of value or data.
The nodes maintain the ledger by storing the transactions in bundles called blocks. The blocks are always ordered chronologically. This order is maintained by linking each new block to the previous one by its unique identifier called block hash … READ THE FULL NODES AND BLOCKS ARTICLE.
What are Networks, Decentralisation & Relaying in Blockchain
We saw what each node does, so it is time to look at the blockchain network as a whole.
There is no central node in the network, and all the nodes are equal. They all relay each other information about the transactions happening and synchronise with each other. This communication process is called gossiping.
The goal of the network is to reach an agreement about the latest valid version of the ledger and synchronise their own copies in accordance with it … FULL ARTICLE ABOUT NETWORKS, DECENTRALISATION AND RELAYING.
What is Consensus, Cryptography and Crypto Economics
Now, we already learned that the goal of the network is to reach an agreement and synchronise about the latest valid version of the ledger. The nodes are given economic incentives to act correctly and guard the network, while also being given economical punishments for trying to fraud/cheat the system. This balance between incentives and punishments is known as crypto-economics … READ THE FULL ARTICLE ABOUT CONSENSUS, CRYPTOGRAPHY, AND CRYPTO-ECONOMICS.
Consensus Algorithms in Blockchain
The process of reaching consensus is known as “consensus algorithm”. The different consensus algorithms have different crypto-economic incentives and punishments. In the previous article, we outlined how the various consensus algorithms differ and how they offer security. While the security in the consensus algorithm is maintained via various forms of punishment, most of the consensus algorithms also incorporate a form of reward for correct behavior. This reward is in the form of cryptocurrency, the topic of this article… FULL ARTICLE ABOUT CONSENSUS ALGORITHM.
Coins in Blockchain
Yes, we already know that the different consensus algorithms offer different crypto-economic rewards and punishments. There are 2 types of cryptocurrencies given for correct behavior – coins and tokens. In this article, we will describe what coins are. As we said coins are given to you when you bring value in the form of correct behaviour in the network.FULL ARTICLE ABOUT COINS.
Smart Contracts in Blockchain
One of the most powerful tools of blockchain is smart contracts. Smart contracts are automatically executed agreements. When two parties agree on some terms, in a smart contract these terms are written into a code. When the agreement is done and the conditions are met the contract is automatically executed, done exactly as both parties agreed at the beginning… FULL ARTICLE ABOUT SMART CONTRACTS.
This is to be continued with other terms and articles explaining how this stunning technology works in a really simple language.