Does it still confuse you? Here is the solution then.
Most contemporary social talks include the topics of cryptocurrencies, decentralized finance(Defi), smart contracts, and Non-Fungible Tokens (NFTs). I myself was utterly curious when I heard them for the first time. Well, I was thinking to myself as to why these things even exist, how these things work, and what the base of these concepts is. So I did my research and found the big man in the show: BLOCKCHAIN.
This article will help you to simply understand what Blockchain is. I believe that my simple examples would clarify most of your doubts on those big concepts in general, if you too struggled to conceptualize them, just like me! So, enjoy your read!
Even though the Blockchain concept was originally described in 1991 by a group of researchers, the invention of bitcoin came into the limelight around 2009. To keep its definition simple to you, Blockchain is a chain of blocks that contains information. Each block contains three salient elements. They are,
- Data (Sender, Receiver, Amount)
- The hash of the previous block
What is a ‘Block’?
Hash is a unique identifier and is used to identify the block, the data depend on the type of blockchain, and most of the blocks contain the details of transactions such as sender, receiver, and amount as data. The hash value of the previous block helps to create a chain of blocks. The first block of the blockchain doesn’t have a value of the previous block, so it introduces the Genesis block. Once a block is created, the hash is being calculated, but changing something inside the block will cause the hash to change.
How does ‘Blockchain’ function?
Let’s imagine that there is a person in country A, who needs to transfer some money to a person in country B. This is a possible scenario through a third-party trusted financial institution, probably a bank. It will take some days and that financial institution will charge a transfer fee for the amount and will add the exchange rates too. Hence, Blockchain technology helps to enable transactions globally without the help of a third-party financial institution. Most importantly, it’s more secure, faster with no exchange rates, and has fewer transaction fees.
Is it more transparent, more secured, and more vulnerable than an ordinary transaction?
Well, as we know, a bank saves all the transactions on ledgers/spreadsheets. Each bank has separate ledgers/spreadsheets. But all transactions of cryptocurrency are saved on the same ledger. It is public for everyone in the network since Blockchain is a secure type of distributed ledger and each transaction of a cryptocurrency is recorded as a block.
As stated above, changing something inside the block will cause the hash to change. Thus, if someone tries to do anything fishy on an already existing block, it will change the hash of the block and affect other blocks since the next block contains the hash of the previous block. So it is not that easy to fraud anyone in the blockchain, that’s why it’s more secure.
But, this has its own downside too. For instance, in terms of vulnerability to fraud and other crimes, this could be due to the implementation process being highly costly and consuming too much energy to work on.
Finally, this is simply an overview of the concept of Blockchain. However, there are more complex scenarios and algorithm workings behind for better and deeper comprehension. You may visit the below links to gather more info, if interested.
I’ll see you guys soon in my next post. Until then, keep safe!