Apart from being the hottest investment opportunity in the second decade of the 21st century, what really gives Bitcoin the power and value is the underlying technology, called Blockchain.
“Blockchain Technology” is a term you have probably heard before.
However, most of the people don’t know the difference between Bitcoin and blockchain.
Bitcoin is a cryptocurrency that fluctuates in value and goes up and down.
On the other side, Blockchain is the underlying technology of cryptocurrencies.
For the first time now in human history, people everywhere can trust each other and transact peer to peer. Trust is established not by some big institution but by collaboration, cryptography and some clever code!
What does the public ledger enable?
We hope the story from the park bench from the previous lesson was clear and easy to understand.
So, did you see what happened?
1) It’s open-source remember?
In the beginning, we defined the total number of digital apples in our public ledger. I know the exact amount that exists. Within the system, I know they are limited. Everyone can check for themselves and they don’t need to trust anyone, nothing is secretly hidden.
2) When I make an exchange I now know that digital apple certifiably left my possession and is now wholly yours. I used to not be able to say that about digital things. It will be updated and verified by the public ledger.
3) Because it’s a public ledger, I didn’t need third-party to make sure I didn’t cheat, or make extra copies for myself, or send apples twice, or thrice…
Within the system, the exchange of a digital apple is now just like the exchange of a physical one.It’s now as good as seeing a physical apple leave my hand and drop into your pocket.
Moreover, just like on the park bench, the exchange involved two people only. You and me — we didn’t need the third party there to make it valid.
In other words, it behaves like a physical object.
But you know what’s cool?
It’s still digital. We can now easily deal with 1,000 apples, or 1 million apples, or even .0000001 apples.
I can send it with a click of a button, and I can still drop it in your digital pocket if I was in Nicaragua and you were all the way in New York.
How cool is that?
Most of you are not going to send digital apples to your friends. It was an example to understand the point of blockchain technology.
It allows everyone to send digital value all around the world without a third party whether it’s money, music, art or anything else.
Excluding the third party will enable us to do it much faster, decrease the risk of losing money and decrease fees.
Bitcoin’s blockchain can process up to 7 transactions per second. All these transactions are tied up and added to the blocks. If we consider that new blocks are created every 10 minutes, it means that a single block can contain up to 4000 transactions. If there are more transactions, they will be added to the next block.
The Bitcoin blockchain stores the data details about transactions, such as the sender, the receiver and the number of coins. The block has the Hash and to understand what the hash is, the best would be to compare the hash to a fingerprint. It is unique for every block, and it identifies the block and all of its contents. The third part of the block is the hash of the previous block. It creates the chain of the blocks because every block has the hash of the previous block and this is the technique that makes the blockchain so secure.
Adding new blocks to previous ones creates a chain of blocks, blockchain.
What could be stored on the blockchain?
Digital assets like money to music to art can be stored on a blockchain. They won’t be stored in a central place but will be distributed across a global ledger using the highest level of cryptography.
When a transaction is conducted, it’s posted globally across millions and millions of computers that are enabling the entire system run and allow us to benefit from this new technology.
The people who manage those computers are called miners, and they have massive computing power in their fingertips, 10 to 100 times bigger than the whole of Google worldwide.