Bitcoin revolutionized how we think of money but Blockchain has revolutionized the way we think about storing data. The technology that underpins Bitcoin has an unimaginable application that people are discovering every day. But why was it only possible to emerge now?
Overcoming the problems of the past
Since the beginning of commerce and trade, there was a requirement for highly labour intensive means to ensure that the historical records can be trusted. In a world of paper ledgers, fraud is rampant and the appearance of wealth can be fabricated. For an accountant or auditor to verify all transactions and find ‘irregularities’ can be exhausting and expensive.
This is where those math nerds come in. The concept is to use cryptography to sign a transaction. This is done with public key infrastructure (PKI). This technique enables secure transactions reliably and verifies the identity via digital signatures. Next, we need the internet, we almost didn’t get the internet because cable providers sought to keep a tight grip on the tiny empire they built. However, the end protocols like TCP and HTTP were made as an open standard. By putting these together and adding an incentive for processing a transaction we can make sure every transaction is coming from a person we know that has coins. This system is still not foolproof as we can’t just have one verifier. We need decentralization to make sure collusion cannot occur and to do this we need a consensus machine.
Turning the gears of the new machine
A Blockchain has a couple parts that make it function.
- The Users are the holders of the coins, and they submit new transactions to the mempool.
- The mempool is the place where the transactions wait to get processed
- Nodes look at the mempool and verify that the transactions are valid based on their knowledge of past transactions. Once these transactions are seen as valid the miners can add the transactions to the ledger, forming new blocks. Each block references the previous block to form a chain. This is where the word Blockchain originates.
Turning this into an analogy
This process is in some way similar to working with an accountant.
You, the user send your receipts to your accountant.
Your accountant acts as a node to verify your receipts.
The verified transactions are then entered into a ledger book, just like a miner creating a block.
And finally, the ledger book gets filed away, similar to blocks getting added to the Blockchain.
Blockchain technologies will revolutionize how we collaborate in an economic sense and many other fields, The one important thing to remember is that it is a solution to centralised control. In our next article, we will look at some of these centralised fake cryptocurrencies also known as shitcoins.