How To Blockchain: Introduction

As the name suggests, it is a chain of blocks that are sequential, interlinked and timestamped – a bit like a database of blocks that stores data. In this data, there is a cryptographic tie between one record of that database to the next. This connection between the different records are the security and tamperproof properties that give blockchain its trustworthiness.

Each block is no more than a set of transactions with header information. Every user creating in the peer-to-peer network is verified and placed into blocks. This way, the transactions can be validated before reaching the next round of ledger consensus and then synchronizing the network with this new block before the next round.

The ledger is a system of record, a different type of database that stores records of transactions or records of balances. The main difference to a traditional database is that this data is replicated on several different computers as opposed to being traditionally stored on a single computer or server. This might seem like a minor difference – however it entails various different requirements to the database.

One difference is in accessing the database. The blockchain is available for all to download and verify. Therefore, read access is public and everyone can see each transaction that happens on the network. To create or update the database, meaning to create a new block and append to the blockchain, one must participate in the consensus protocol and basically be the lucky winner of the consensus lottery to forge the next block. Calling it a lottery is a simplification, nevertheless it is not that far from the truth: it effectively shows the main purpose which is to enable a single entity to update the blockchain at one time, through a selection process with some degree of randomness.             

• The most renown consensus protocols are proof-of-work protocols in which the lottery is determined by your computational working capability: the more computing power, the higher the chances of winning the lottery.
• There are also other protocols such as proof-of-stake protocols that do not depend on your computational power, but rely on your stake in the network, plus in some proportion on your probability of forging a new block.

Immutability and the trustless nature of interactions between each participant are the key value propositions of blockchain technology.

• The ability of having a system of record which is immutable to a central third party, unless verified by the network of operators, provides reassurance that everything that is recorded on the blockchain will stay on the blockchain unaltered.
• Also, the network is decentralized, meaning there is no central authority that validates transactions. This is a huge advantage because nobody have to solely rely on a central party or have that responsibility shared across the other peers within the network.
• The beauty of the consensus protocol, together with the entire network verifying the transactions, is that there is no requirement for trust among the different peers, assumed that the majority of the peers are honest towards the protocol.

This feature of decentralization of authority has become a foundational philosophical ideology inherent to this technology and movement that has not appeared in isolation. Blockchain is another manifestation of the movement towards more decentralization of business activity, as is the case in other areas of our economy.

The advantages of centralization, commonly referred to as economies of scale, have inherent costs associated. Time and experience have shown that too much centralization has its disadvantages: these costs have been undermined through technological evolution and innovation. Consequently, the disruption to the centralization paradigm has opened the door for decentralized options that either do not have those same costs or minimize the risks associated with centralization. 

So, at the end of the day blockchain is no more than a shift in society’s trust away from central authorities, even though we depend on them in our daily lives: central planning organizations, national & multinational central banks, clearing houses for payments, centralized national land registries, ratings agencies, audit firms, and so on. 

This is an industry alike many other: as it started only little over a decade ago, blockchain has been growing rapidly from its infancy and it keeps maturing through its adolescence into practice. Many are starting to pay attention to blockchain, engaging the involvement of individuals as well as corporations with close attention to being paid by governments and multinational organizations. 

This is a space that is moving fast. The number of active addresses on the main networks is exponentially increasing as are the compute power and hash rate of these same networks. This is a sign that each of these networks are more and more secure to threats. A significant recent event was that of an initial public offering of Coinbase, one of the biggest digital asset exchanges, demonstrating that there is investor interest in this space and so that the foresight of this technology will have crucial place in the modern world.