The Blockchain Explained In Less Than 100 Words
The Blockchain – You (a “node“) have a file of transactions on your computer (a “ledger”). Two government accountants (let’s call them “miners”) have the same file on theirs (so it’s “distributed”). As you make a transaction, your computer sends an e-mail to each accountant to inform them.
Each accountant rushes to be the first to check whether you can afford it (and be paid their salary “Bitcoins”). The first to check and validate hits “REPLY ALL”, attaching their logic for verifying the transaction (“Proof of Work”). If the other accountant agrees, everyone updates their file…
This concept is enabled by “Blockchain” technology.
Surely There Is More To The Blockchain Than That?
The simple answer is absolutely, although the reality is, not much more. The principle of the blockchain is easy enough to appreciate, executing it of course, is where the difficulty begins.
When we take a look at the web today and the wide variety of applications being operated on it, we discover a considerable amount of enterprise is being powered by ‘trusted third parties’ who frequently function as intermediaries in monetary transactions.
You know how expensive it can be if you have ever sent money overseas. Generally, you will send it by means of an intermediary, a financial institution. The financial institution will execute the transaction and oversee and in some cases through a second ‘third party’.
Money transfer transactions, typically speaking, can take up to 3 working days to accomplish with the intermediary taking a commission or fee for their money exchange services.
Elimination Of Third Party Trust
Blockchain is open source technology that provides an alternative to ‘third party trust’ requirements. It bypasses the necessity for third party middleman services and charges by utilizing cryptocurrencies as an alternative to standard $USD, GBP, Euro etc
The expensive Trusted Third Party is removed and replaced by the collective verification of the ecosystem (Blockchain) delivering unprecedented traceability, security, speed and privacy.
There are multiple versions of you, referred to as “nodes”, on a network (refer to the opening example) functioning as executors of miners and transactions concurrently. Transactions are gathered into blocks prior to being added to the Blockchain.
Miners obtain a Bitcoin reward based upon the computational time it takes to work out:
a) whether the transaction is legitimate and
b) what is the precise mathematical key to link to the block of transactions into the correct location in the open ledger.
As more transactions are performed, more Bitcoins flow into the virtual money supply.
The “reward” miners receive will reduces every 4 years until Bitcoin production eventually ceases. The Blockchain was originally intended to manage primarily Bitcoin, rather than other cryptocurrencies.
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