If you’re reading this there’s a good chance you think you need a Computer Science degree to understand what goes on in the digital nooks and crannies of the decentralized web.
I’m happy to tell you blockchains aren’t that complex.
They’re quite literally digital journals (with a few bells and whistles). They seem amazing because they use simple tech in innovative ways.
In this article, I’ll be explaining everything you want to know.
We’ll discuss Blockchains in 4 parts;
- What a Blockchain is
- How Blockchains work
- Why we need Blockchains
- Their use beyond Currency
Grab a Coke and strap in.
I’m about to blow your mind.
A blockchain is a chain of blocks.
Amazing revelation! I know, I know, hold your applause.
The ‘blocks’ in this case are collections of data, the data could be anything – photos of your ex-girlfriends in chronological order, the location of every McDonalds in DC, or more commonly transaction records.
The point of chaining the blocks is to create a decentralized journal – A trustable record that allows strangers on the internet to agree on what happened when.
Since Block B follows Block A, Block A happened first.
Decentralized means there’s no single person or computer in control i.e nobody can regulate or censor, and anyone can participate.
Just like Sugar and Carbonated Water make Coke Coke, two things make blockchains blockchains;
- They are distributed
- They are immutable
(The Blockchains, not Coke)
Distributed means everyone on the network has a copy of the blockchain.
Immutable means once a block is added to the blockchain, it can’t be removed or even altered.
If you accidentally add a photograph of the ‘certain kind’ to a blockchain, I recommend plastic surgery.
In conclusion, a blockchain is a decentralized, distributed, immutable chain of data.
How they work;
Two processes keep blockchains running
- Filling the blocks with data
- Chaining the blocks together
To explain these processes we’ll consider an imaginary blockchain.
For simplicity, our blockchain will hold only transaction records, so there’s no risk of attaching “certain images”, but just because ours can’t doesn’t mean others can’t.
I’ll also be using the term miner or node in the following sections, both terms refer to the computers that add data to blockchains.
Adding Data to the Blocks
The data in our blockchain looks like this: Katie sends 5 SOL to Tarrasch and now Katie has 495 SOL while Tarrasch has 20 SOL.
To start this process, Katie sends a request to the network (until the transaction is confirmed, it’s a request.)
After she sends the SOL, the request propagates through the network, miners see this request and verify that it’s coming from Katie’s wallet, once verified they add a copy of the request to their blocks.
Miners repeat this process with as many transactions as possible within the time frame required to add the block to the blockchain. Doesn’t matter if it’s one transaction or a million, as many as possible.
They compile the requests into a block, add it to their copy of the blockchain and propose the updated Blockchain to the entire network.
Adding Blocks to The Blockchain
There are 2 rules for adding blocks;
- A proposed block is only valid when 51% of the network accepts it.
- The longest blockchain always tells the truth.
So our miner proposes it’s block if it’s accepted, Katie’s transaction gets one confirmation, if it’s rejected, the request remains until a miner that has a copy of the transaction in it’s block successfully adds it’s block.
Let’s say I buy a PS5 with some Bitcoin and the transaction gets confirmed (i.e the block has been added to the Blockchain).
After this block has been added, let’s say I then propose another Blockchain that’s longer than the original blockchain where my transaction never happened.
All the blocks are still valid, the only difference is I’ve censored a transaction.
Since the longest valid Blockchain tells the truth I’ve rewritten history.
So how do we prevent bad blocks?
Short answer; we can’t.
This problem is called the Byzantine Generals Problem.
The name is a story for another day.
In 2009 Satoshi Nakamoto created Proof of Work to solve this problem.
I’ll explain how and why it works.
Proof of Work
Proof of Work is a consensus mechanism.
It allows people (or in this case computers), to agree on stuff without trusting each other.
Proof of Work achieves consensus by forcing miners to spend money to add a block. The cost comes in the form of an overgrown electric bill.
PoW makes miners solve insane puzzles every time they want to add a block.
If you don’t solve the puzzle, your block can be easily proved invalid.
Because of the requirements to solve a puzzle, it’s almost impossible to build a longer chain faster than the main chain.
It’s only possible when you have more than half the computing power of the network.
For Ethereum that comes out to roughly 4.15 Million RTX 3090s.
One RTX 3090 costs $1500.
Combine that with the electricity costs of half of Switzerland and it becomes virtually impossible.
So, PoW doesn’t prevent making fake blocks, it just makes it very dumb.
It keeps blockchains secure with the slight disadvantage of extra global warming.
If you’d like to learn more about mining, where hashes come in, and all the technical stuff, here’s a good article that explains in detail (Including solutions to the global warming thing.)
Because Centralization sucks!
If you’ve ever been at the mercy of an autocratic system, you’ll understand.
Whether it’s Twitter deleting your “inappropriate” tweets, getting your Instagram account frozen for using a VPN, or even having your bank account suspended for “suspicious activity”, centralization leaves too much to one person.
That may not sound like a big deal but it gets worse.
Think of the people in Afghanistan where the Taliban suddenly took over – banks closed up so no money.
Or the citizens of 2015 Greece that suddenly had a daily withdrawal limit imposed on them.
A more light-hearted example is Vitalik Buterin’s World of Warcraft character (he created Ethereum).
Vitalik grinded till his in-game character reached level 60, he went to bed that night on top of the world. The next day, his character was nerfed by a game update.
That might sound childish, but the point is centralized systems put too much power in a single person or group’s hands.
Decentralization, on the other hand, creates a perfect democracy.
If 51% of the network accepts it, it’s valid.
Abraham Lincoln couldn’t be more proud.
Other Uses of Blockchains
Anytime you talk about blockchains there are 4 groups of people;
- The guy that goes ‘WTF are people chaining blocks”. (That used to be you).
- The other guy that goes ” it’s a fad, a bubble, you’ll all go broke soon”.
- The guy that sits in the corner, dressed in all black digitally counting the half a mil he made selling a monkey JPEG.
- The guy that starts educating guy one and arguing with guy two that blockchains will take over the world.
They usually sound like “The Metaverse is an application of blockchain tech and Elon Musk is developing blockchain rockets”.
Blockchains aren’t going to take us to Mars, or build robots, they’re digital journals, they can, however, do some amazing stuff like;
A lot of people don’t trust the election process (not necessarily the bushy-bearded conspiracy theorists). Elections are centralized and very confidential, if you’re on the outside you can only hope the people on the inside are trustworthy.
If we conducted elections using blockchains instead, they’d be impossible to rig and easier to monitor.
(Blockchain elections already exist and they’ve enjoyed massive success so far).
Before you dismiss this as literal monkey business you should know NFTs are more than the monkey JPEGs.
NFTs use blockchains’ immutability to record the ownership of items (digital or physical).
The NFTs are basically CoOs (Certificates of Ownership).
Whoever holds the NFT, owns the item that NFT is related to. Since the blockchain is immutable, ownership can’t be changed without due procedure.
This means physical items like land can be represented as NFTs making them impossible to steal.
More on NFTs here
- Legal Contracts
Let’s say “someone” is threatening to upload a “certain kind of video” of you and a “certain type of friend” unless you pay a certain amount.
Blackmail is illegal so they frame it as selling the distribution rights to the video.
Naturally, you’d want to keep the exchange quiet, unfortunately, if there are no witnesses, contracts aren’t legally binding.
If you have too few witnesses, you run the risk of being cut out by the other parties.
What do you do?
Have the agreement on the blockchain – it can’t be altered and you can remain anonymous.
Blockchain – 3 | 0 – Centralization.
In conclusion, the idea is that blockchains only work well when we need a decentralized trust-able record.
- A blockchain is a decentralized journal.
- A block is only added to the blockchain when the majority of the network accepts it, combine this with Proof of Work and Blockchains are essentially tamper-proof.
- Blockchains are important because they distribute power.
- Blockchains have use beyond currency and can work anywhere we need a trustable record, so yes to decentralized money but no, there will be no decentralized cars.
Disclaimer: No blocks were harmed in the writing of this article, the chaining process is pain-free and helps the blocks make friends.
WikiMedia Links: https://upload.wikimedia.org/wikipedia/commons/thumb/a/ab/Blockchain_landscape.svg/2560px-Blockchain_landscape.svg.png