What is blockchain – The blockchain explained

Posted in Bitcoin explained
at 2016.11.12
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What is the blockchain - The blockchain explained

What the blockchain is, is best explained by the concept of a shared public ledger. As you can see in the image, the whole Bitcoin network relies on the blockchain. All confirmed transactions are included in the blockchain. By doing this, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. In this article you will find more information on what the blockchain is. On this website the blockchain is not only explained but also this website will also provide you insight in how you can earn more BTC, mine for and trade Bitcoins as well as selling them.

What is the blockchain – The blockchain explained

Nowadays the blockchain has acquired a new identity in the enterprise. At a time when companies face new challenges in data management and security, it’s emerging as a way to let companies make and verify transactions on a network instantaneously without a central authority. Today, more than 40 top financial institutions and a growing number of firms across industries are experimenting with distributed ledger technology as a secure and transparent way to digitally track the ownership of assets, a move that could speed up transactions and cut costs while lowering the risk of fraud.

A blockchain can be described as a data structure that enable the creation of a digital ledger as described in the introduction. This digital ledger of  transactions is than shared among the distributed network of computers. By using cryptography each participant in the network is allowed to manipulate the ledger in a secure way without the need for a central authority.

The balance of each Bitcoin address can be verified by analysing the blockchain. A new block is created about every ten minutes through a process called mining. Miners confirm  all valid transactions since the previous block, after this confirmation a new block is permanently added to the blockchain.

Once a block of data is recorded on the blockchain ledger, it’s extremely difficult to change or remove that block of data. If somebody wants to add another block of data with a transaction, participants in the network — all of which have copies of the existing blockchain — run algorithms to evaluate and verify the proposed transaction.
If a majority of nodes agree that the transaction looks valid — that is, identifying information matches the blockchain’s history — then the new transaction will be approved and a new block added to the chain.

Video: What is the blockchain – The blockchain explained

To have a better understanding of what the blockchain is, have a look at the video below where the blockchain is explained:

 

For people with a visual disability there’s a transcript of the video below:

0:00 –  What if there is a technological advancement so powerful
0:03 –  that it transforms the very basic pillars of our society?
0:07 –  A technology which fundamentally influences the way that our economy,
0:11 – governance systems and businesses function,
0:15 – and change our conceptual understanding of trade, ownership and trust?
0:19 –  This technology already exists,
0:21 – and it’s called crypto currency.
0:24 – People often think of Bitcoin as only virtual money or a transaction system.
0:29 – But if you look closer, you’ll see that the monetary aspect,
0:32 – is just the tip of the iceberg.
0:34 –  That’s because Bitcoin is a ground-breaking internet technology
0:38 – for which money is merely one of the possible applications.
0:43 – Money exists to facilitate trade.
0:46 – Through the centuries, trade has become incredibly complex.
0:51 – Everyone trades with everyone, worldwide.
0:54 – Trade is recorded in bookkeeping.
0:56 – This information is often isolated and closed to the public.
1:01 – For this reason, we use third parties and middlemen we trust
1:05 – to facilitate and approve our transactions.
1:08 – Think of governments, banks, accountants, notaries,
1:11 –  and the paper money in your wallet.
1:13 – We call these ‘Trusted Third Parties’.
1:17 – This brings us to the essence of Bitcoin.
1:20 – Bitcoin’s software enables a network of computers
1:23 – to maintain a collective bookkeeping via the internet.
1:27 – This bookkeeping is neither closed nor in control of one party,
1:31 – rather, it is public
1:34 – and available in one digital ledger which is fully distributed across the network.
1:38 – We call this the Blockchain.
1:41 – In the Blockchain, all transactions are logged including information on the date,
1:46 – time, participants and amount of every single transaction.
1:50 – Each node in the network owns a full copy of the Blockchain.
1:54 – On the basis of complicated state-of-the-art mathematical principles,
1:58 – the transactions are verified by the so-called Bitcoin Miners,
2:02 – who maintain the ledger.
2:04 – The mathematical principles also ensure that these nodes
2:07 – automatically and continuously agree
2:10 – about the current state of the ledger and every transaction in it.
2:14 – If anyone attempts to corrupt a transaction, the nodes will not arrive at a consensus
2:19 – and hence will refuse to incorporate the transaction in the Blockchain.
2:23 – So every transaction is public
2:25 – and thousands of nodes unanimously agree that a transaction has occurred
2:29 – on date X at time Y.
2:31 – It’s like there’s a notary present at each transaction.
2:36 – This way, everyone has access to a shared single source of truth.
2:41 – This is why we can always trust the Blockchain.
2:45 – The ledger doesn’t care
2:47 – whether a bitcoin represents a certain amount of euros or dollars,
2:49 – or anything else of value or property for that matter.
2:52 – Users can decide for themselves what a unit of bitcoin represents
2:56 –  A bitcoin is divisable in 100 million units.
3:00 – And each unit is both individually identifiable and programmable.
3:05 – This means that users can assign properties to each unit.
3:09 – Users can program a unit to represent a eurocent,
3:12 – or a share in a company,
3:13 – a kilowatt-hour of energy
3:15 – or a digital certificate of ownership.
3:17 – Because of this, Bitcoin is much more than simply money and payments:
3:21 – a Bitcoin can represent many kinds of property.
3:24 – A thousand barrels of oil,
3:26 – award credits,
3:27 – or a vote during elections, for example.
3:30 – Moreover, Bitcoin allows us to make our currency smarter and to automatize our cash and money flows.
3:36 – Imagine a healthcare allowance in dollars or euros
3:39 – that can only be used to pay for healthcare at certified parties.
3:43 –  In this case, whether someone actually follows the rules is no longer verified in the bureaucratic process afterwards.
3:49 – You simply program these rules into the money.
3:52 – Ergo: compliancy up front.
3:56 – The unit can even be programmed in such a way
3:58 – that it will automatically return to the provider
4:01 – if the receiver doesn’t use it after a certain amount of time.
4:04 – This way, the provider can ensure that allowances are not hoarded.
4:09 – A company can control its spending in the same way
4:12 – by programming budgets for salaries, machinery, materials, and maintenance so
4:17 – that the respective money is specified
4:19 – and cannot be spent on other things.
4:22 – Automizing such matters leads to a considerable decrease in bureaucracy,
4:26 – which saves accountants, controllers,
4:27 – and the organization in general an incredible amount of time.
4:31 – The programmable, open character of Bitcoin
4:34 – allows us to completely rebuild and innovate
4:38 – our financial sector and our administrative processes.
4:40 – Make them more efficient and transparent
4:43 – and significantly decrease bureaucracy.
4:46 – But there’s more.
4:47 – In an ‘internet of things’,
4:49 – our economy will be dealing with machines that actively participate in the economic traffic.
4:54 – In fact, they are already here.
4:56 – Think of a vending machine. Or drones delivering packages.
5:00 – These machines are unfamiliar with the concept of trust,
5:03 – but Bitcoin is not.
5:05 – Because of Bitcoin, the drone can be a hundred percent certain
5:08 – that it will deliver the package to the right recipient
5:11- and know for sure that it has been paid for.
5:14 – And we can program the vending machine in such a way
5:16 – that it will automatically keep track of its supplies, order new supplies
5:21 – from the supplier and pay for them automatically.
5:24 – Of course, you will understand that this is only the beginning.
5:27 – Internet technology is disruptive and breaks the status quo.
5:31 – It opens markets
5:32 – and breaks the positions of middlemen all the time.
5:35 – Bitcoin and crypto currencies have caused a paradigm shift.
5:39 – It’s time to explore this new technology constructively and critically,
5:42 – and openly discuss the potential applications.

If you’re interested to know more about the possibilities of the blockchain in the future have a look at this TED-talk of Mike Schwartz.

If you want to benefit from using the blockchain and earn money by mining bitcoins read the tips in this article ‘Tips on how you can earn money by mining bitcoins‘.

Image source: WSJ

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