Blockchain technology is the future. In 10 years, it will be a household name and an integral part of our everyday lives. We’ll have blockchain-powered phones that can send money from one country to another without fees or wait time. We’ll have blockchain-enabled cars that can’t be stolen because they’re registered on a decentralized database, and we’ll even make purchases at grocery stores with crypto-currencies like Bitcoin. Blockchain has the potential to revolutionize all aspects of life as we know it.

The word “blockchain” might sound intimidating now, but soon enough, you won’t be able to live without it!

So you might have heard of this thing called blockchain, and you might also know that it’s some database. But what is it?

Understanding blockchain

To understand blockchain, we first need to understand how transactions work in the normal world. Let’s say I lend you 50$: In the real world, when I give you 50$, I reduce my wallet balance by -50$. If I want to send money to your account, later on, I’ll add +50$ to my account, and after the transaction has gone through, your bank will adjust your balance accordingly as well.

It’s a decentralized ledger that can efficiently record transactions between two parties that you can verify permanently. The blockchain network lives in a state of consensus, automatically checking in with itself every ten minutes. It is a kind of self-auditing system of a digital value. Each group of these transactions is referred to as a “block.” Two important properties result from this: transparency and immutability (the blocks cannot be changed once they are created). This allows companies to provide you with an easy way to track your

Now imagine if we had to move these balances every time someone wanted to exchange funds between two? It would be an absolute mess of transactions. That’s why normal banks do things this way: They keep track of every transaction that has happened to who and what the balance is, but they only update their records when it’s needed (after someone has made a withdrawal).

Now, there are ways around this. For example, SWIFT transfer transactions can take up to 5 days because they have to go through several banking institutions before they are in the right place. And even then, you won’t get your money straight away; it will depend on if the other party has enough money in their account to cover your request. The same goes for bank wire transfers as well according to RemoteDBA.com.  

So how does Bitcoin solve these issues? By updating balances after each transaction, Bitcoin records every transaction in a long list called the blockchain. This ledger is available for everyone to see so that nobody can tamper with the data, and there’s no way to fake something in the blockchain because the rest of the network will reject it as invalid.

So, you might ask, why would anyone do this? Well, here’s where bitcoins come into play. A small piece of code represents what you’re transferring to another person: In our 50$ example above, that could either be 0.01 BTC or 0BU741F0000000000000000000000000000000, either one doesn’t matter, but if people send BTCs regularly, then it makes more sense to use numbers rather letters because we don’t want to spend our time trying to tell apart a “B” from a “7” when reading things.

How do they work?

And that’s pretty much how the blockchain and bitcoins work, but where do the blocks come into play? Well, there are thousands of computers in this big network called Bitcoin running software that makes sure everything is up to date, and there aren’t any double-spends going around (where someone tries to send money more than once). Each block represents one of these transactions (in other words, a block can only contain 1 transaction), which each computer must verify before it gets added as part of the chain.

The first computer in line does this every 10 minutes; they take all recent transactions within their system and bundle them into a block. Every computer in the network then has to verify that these transactions are valid and only once it gets confirmed by 51% of the computers within the network is this transaction added to the blockchain:

It means that if someone wants to tamper with an old transaction, they’d have to redo all the work from that point on because every verification after their sabotaged transaction would be wrong as well. Theoretically, you could keep going like this for about 5-10 years until there’s so much data in one single block that it will take more than 10 minutes for each verifier (or “miner” in Bitcoin terms) to run through one block. To prevent this from happening, we now use another type of block called an “extended block” that only contains all the transactions that happened within the last 10 minutes. The miners then verify these extended blocks instead to keep up with everything going on in this network.

Why Bitcoins?

Now, why do we have bitcoins? Well, to make it a bit easier for people (and especially software developers) to write code for this whole process, they added something extra: A currency. It will make sure that people pay their fair share too when updating blocks, and if someone doesn’t want to help out or does so with malicious intent, then everyone else will reject their changes. So basically, you’ll need 51% of the total hashing power of the Bitcoin network for your transaction to go through because the network won’t trust it otherwise.

Many other cryptocurrencies follow this same idea (e.g., Litecoin, Dogecoin). Still, instead of using SHA-256, they use different hashing algorithms, which means you can’t just mine them with the hardware you’d probably already have for Bitcoin mining. If you’re interested in learning more about how these algorithms work and what’s involved in this process, I’ll suggest reading “Mining – The very basics.”   

Blockchain is an emerging technology that can change how we approach data security, financial transactions, and even elections. Businesses of all sizes need to stay up-to-date on this new trend so they can reap its benefits as it grows in popularity.