ELI5: Blockchain Explained
Bitcoin? Blockchain? Are they the same?
The answer is Yes and No.
Time to time, the popularity of bitcoin and blockchain keep increasing. From only few people believe and study about them, it becomes more common terms we talk about in our daily life, especially those who are related to finance world or making a life through trading and investing.
But honestly, do they all know that Bitcoin and Blockchain are not the same thing?
What is Blockchain
A blockchain is a database created by a series of entries called (you guessed) blocks.
Blockchains have a special function where any effort to change one of the entries will alter the whole chain. It is also an eternal data structure that holds blocks in chronological order of inclusion. It is believed to be a technology intended to reshape the fundamentals of many main industries in the future.
Blockchain financial documents is regarded as an ideal recording platform for finance transactions and record (digitally), which is proven by the transactions on Bitcoin networks.
In reality, Bitcoin was the first broadly accepted application of blockchains to financial record keeping. So yeah, Bitcoin is an application that created or using blockchain technology.
So now, if you’re interested in getting involved more about blockchain (not just bitcoin and other cryptocurrencies), you should first grasp how this technology works.
Let ‘s start with one of the main blockchain components — knowing the distinction between a centralized versus a decentralized network.
What is a Centralized Network
In a centralized network, all the parties concerned depend on a single central agency to carry out and validate transfers, retaining a single directory on behalf of all the others. A bank is a fine example of that.
But there are a variety of problems with this system that make it less desirable than a decentralized network.
To begin with, investing both the confidence and trust in a single entity can pose a danger to the protection and legitimacy of all concerned. This intermediaries have been seen to capture and sell the data of the parties concerned without permission, to facilitate data leaks, to illustrate inefficiencies and more.
There is also the problem of remittances, which contributes to payments for transferring money to the receiver abroad through a variety of intermediaries.
What is a Decentralized Network
In a decentralized network, each entity maintains its own separate ledger, monitoring all transactions and operating off the ledger to validate transactions and form an agreement. Records can not be distorted as long as the rest of people involved work for the benefit of the community.
Blockchain is automating this trust. It verifies the integrity of all transactions for the whole world to see, eliminate the possibility of collusion and coercion by any group with greater power or authority than the others.
A strong example for this mutual, self-assessed ledger is Google Doc. Everyone working on a doc has access to the same exact file and can see and check updates in real time.
For a Word document, though, modifications will have to be made by one party at a time and only passed to the next party for further editing. This is more analogous to the traditional ledger style inherent in consolidated networks.
Now that we’ve taken down this critical differentiator in blockchain technology, let’s take a look at some of the key words involved in a blockchain transaction.
What is Block
A block is a piece of digital content that contains copies of the most recent transactions on the network. You may think of a block as a puzzle, where each piece represents a different transaction and its relevant details.
With Bitcoin, a block displays all transactions that have taken place within the last 10 minutes (on average, but two blocks may be inserted in seconds, and certain blocks do not contain transactions other than block rewards). This means that in normal conditions, a new block (or puzzle) is generated every 10 minutes and sent out to the network to be placed together (or resolved). Talk on it below.
What is Chain
A chain can be thought of as a shelf that stores all the completed puzzles in the history of the network, each being distinct but recognizable to everyone involved. When a block (or puzzle) is attached to the shelf (or chain), it can never be changed or removed except for what is known as a 51 percent strike.
Each block is mathematically connected to and applies to the block that came before it, making the database potentially timeless.
What is Node(s)
A node is a term for each individual member of the blockchain group working to solve these puzzles (blocks) and maintaining their own version of the distributed ledger (or puzzle shelf). Although each user has its own version, each user has transparent access to each other’s ledger, which is basically a replica of each other.
In the case of bitcoin (the first commonly used blockchain application), the node refers to a user working on the bitcoin blockchain to aid validate transactions. This operation, on the other hand, works to keep the network intact, accurate and running.
Nodes are also often referred to as miners, but there is some difference between them.
The aim of a miner is to collect and validate transaction requests that generate new blocks — or, in other words, to generate a puzzle until it has been generated and sent out. Both nodes must upgrade their ledgers to the newly generated blocks. This verification and development of new blocks avoids the copying or use of transactions twice.
What is Mining
As mentioned, mining is a process of sorting out a block and adding it to the chain — or putting together a puzzle and adding it to the shelf.
When a block is resolved, miners will earn a reward that is fixed and varies over time , known as a block reward. The mining method is automatic, in that the mining program and the computer attached to the user perform the job on their own. Faster, more powerful machines contribute to more frequent incentives for miners.
Breakdown of purchases — Bringing the puzzle together
Let ‘s imagine that you decided to give a friend 1 bitcoin or 1 piece of a puzzle.
This proposal would be broadcast to the entire bitcoin network, and your piece of the puzzle, along with the rest of the puzzle, would be submitted to each participant.
Each participant (miners) will then attempt to bring together a puzzle that involves your transaction. The member who first assembles the puzzle (solves the block) attaches it to the shelf (chain) and shows the network the latest iteration of the shelf (blockchain), which contains a newly assembled puzzle containing your transaction.
The other members accept that all the puzzles seen in the current edition of the shelf are correct, at which point the member who solved the puzzle and showed the current shelf will receive a prize — and your friend will receive his or her piece of the puzzle (1 bitcoin).
Then the mining process continues and the next puzzle is sent out.
This illustrates why miners are so important to the blockchain project — without them, there would be no completed transactions (i.e., the puzzles would be sent out and never finished).
Reasons Why Blockchain is Getting So Popular
Blockchain ‘s success has blossomed for a variety of reasons related mainly to its decentralized design.
Fiat money is owned by banks that can suspend capital, reject applications, and charge fees.
But with blockchain, consumers have expanded control over their own funds and are able to transfer money on a peer-to — peer basis without the need for this third party interference.
The configuration of the network itself itself encourages trust. Since miners are paid with crypto and spend heavily in powerful hardware and hosting, any refused transactions due to malicious activity or dishonesty will only result in wasted time and resources for anyone involved.
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