- CRYPTO TONIGHT
- What the Hell Is a Blockchain?
What the Hell Is a Blockchain?
Welcome to the Crypto Tonight Explainer Series
Hey everyone, Jordan here.
I’m stoked to be writing the first issue of Crypto Tonight’s explainer series. One of our goals as a publication is to help make the crypto landscape more approachable so that decentralization can start to facilitate democratization. This may be the mission of many of those involved in the space (besides those aping into NFT projects like Porta Potty Pandas to make a quick buck or pull the rug), but at the moment, the industry is extremely intimidating. Much of the technology and concepts involved remain highly technical and hard to understand. I’m here to do my best to take some of these fundamentals and make them intelligible. What better place to start than by explaining just what a blockchain is. PS: (If you want to review this article’s key takeaways, Parker made a Google Slides recapping terms and concepts here).
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By now, most people have at least come into contact with the word blockchain in one form or another. I can assure you that it is more than a word companies toss onto the beginning or end of their brand name in order to send their valuation to the moon (though this might have been what it was in the past). A blockchain is the element that makes the world of crypto and decentralization possible. Its use cases are much broader than that though. Blockchains are utilized by many businesses and are helping streamline everything from supply chain management to health information management.
Okay, But What the Hell Is It?
A blockchain is a distributed ledger that is immutable (unable to be changed and extremely secure) for recording transactions and tracking assets. Assets tracked on the network can be things that are both tangible (a home, sushi grade tuna, etc.) and intangible (cryptocurrency, patents, etc.). Theoretically, anything of value can be tracked on the blockchain. The fact that it is distributed means that all participants on the chain have a copy of the entire ledger, providing complete transparency. It is this layer of transparency and security that has so many people excited about the use of blockchains in decentralizing industries typically controlled by large institutions, such as finance.
How Does It Work?
It’ll be helpful in this context to think about the most well known blockchain, Bitcoin. At its time of conception, Bitcoin was intended to be a form of digital cash that would be exchanged from peer-to-peer without having to go through a financial institution. The only problem being that there would need to be a way to make sure individuals were not exchanging the same Bitcoin twice. Enter the blockchain!
Each time a transaction is made on a blockchain, a number of steps are taken to prove its authenticity. It is important to note that there are a number of blockchains, and though they may be similar in many ways, the means by which a consensus is reached over the validity of the transaction can be different. We’ll cover this more in a later edition, but the two most prevalent consensus mechanisms are a Proof of Stake (Ethereum) and a Proof of Work (Bitcoin).
For example, in the meme above, Spidey wants to send his Avenger pal some BTC. Though he may not realize it, a proof of work mechanism is at play and the transaction is immediately sent to a network of computers scattered around the world. These computers, or “nodes,” are then tasked with solving complex equations, which will prove the legitimacy of the transaction and create a block in which that data is stored. In the case of this BTC transaction, the data stored will be that Spidey sent and Ant Man received the BTC, the amount that was sent and when the transaction occurred. Furthermore, this record ensures that the same coin can not be used by an individual more than once, removing the layer for which we’ve depended on financial institutions for so long. As more and more blocks are created, they are chained together, creating a complete history of all transactions conducted. As mentioned above, because the record of this transaction is stored on computers around the world, it makes the system super secure. Though you may have heard about exchanges being hacked in the past, the blockchain itself has remained intact.
While blockchains have gained worldwide recognition for their role in facilitating the growth of the crypto industry, they are extremely valuable and it’s likely that they’ll be utilized in everyday life in the near future, whether or not we even realize it. As we saw above, Bitcoin is making it possible for peer-to-peer transactions to be conducted without intermediaries, such as banks. Likewise, the second largest crypto blockchain, Ethereum, is enabling entire financial systems to be built upon its infrastructure. We will get into the specifics of these in upcoming newsletters, but thanks to these systems, it’s possible to imagine a world in which users have complete control over their financials and don’t have to rely on legacy institutions, such as big banks.
I think one area that will become heavily dependent upon the blockchain sooner rather than later is the healthcare system. Thanks to its security and ability to produce historical records that can never be altered, this seems like a no brainer. Patients need to be sure that their health data is safe and easily accessible no matter where in the world they are. Likewise, doctors need to be able to access the most up to date patient records in order to provide the best courses of treatment and operate efficiently. I could keep going for ages here, but don’t be surprised if in the coming year or two you continue to see a crop of new players in this space.
The list of industries that will be able to use this technology to make themselves more efficient and profitable is large, and I hope that you’re now armed with some information that makes it possible to imagine how they might employ the tech.
I’d love to chat more - if you have any questions or feedback, hit me up!