What is Blockchain?
You’ve probably heard all about blockchain by now. But while in 2023 everyone knows about it, does anyone actually know how it works? Below, you’ll find blockchain technology explained
Blockchain is exactly what it says on the box - a chain of blocks with information on monetary transactions produced by users and their PCs.
Explain more, please, what is blockchain technology?
That’s the beauty of it: as people send money using crypto (it’s like sending USD, with minor improvements), all their transactions with the information on where, how much money was sent, when, and so on, is recorded in one place.
It’s not possible to change the records. So basically it’s one big ledger book you can open at any time and find out what happened.
It’s as simple as: you want to send crypto money, the system checks if you have the money in your wallet, records the data about your transaction so it knows where everything is, and the money is off to any corner of the world.
That data remains in eternity, exactly how it was written, unhackable, limitless, and with many more use cases than just bookkeeping.
Well, that’s convenient
And now you’re thinking: “If we had a system of fully transparent and immutable records anyone could access at any time, we’d have a picnic! We could track where taxpayer dollars are going, prevent fraud, chase down criminals…”. Great idea! Blockchain is limited to keeping records of financial transactions for now, but it really ought to be used everywhere else too where crime prvails and justice is yet to be served.
How is blockchain secured?
The short answer is: very well. In the 13 years it’s been around, Bitcoin’s blockchain has been an open system, meaning anyone could see the code and, if needs be, attack and exploit it. The bounty is in billions, so the incentive is there. And yet, in over 10 years of being attacked around the clock by the best hackers out there, it still hasn’t been cracked.
Now, it’s important to notice that we’re talking about blockchain in its pure form, which means its creator Satoshi Nakamoto’s original blockchain. As it seems to normally happen, after he came up with the idea, a slew of users turned up who “borrowed” the code and tweaked it here and there, often breaking the original rules. But, while Satoshi was clearly a genius, they weren’t. As a result, many blockchain-based projects today spectacularly fail.
Bitcoin’s blockchain, on the other hand, was built for ultra-focus on security, which meant sacrificing other things like speed and scalability. 1) It has unreal levels of encryption (orihginally designed by the US Navy), and 2) identical/syncronized copies of the system are stored on millions of computers all over the world. While with centralized systems it’s enough to just break into one PC, in case of Bitcoin’s blockchain, millions of PCs would have to be broken into at the same time: if one PC behaves strangely when it’s cracked, the others will kick it out.
And that’s just the beginning.
You can read our more advanced guides on what makes Bitcoin so secure in the long-read section about BTC.
Blockchain compared to the banking system
- Be the master of your face and stand at the helm of your destiny: you’re in charge of configuring everything
- You won’t get your money back in case of a mistake
- No head office and no-one to call
- You need a very good understanding of how it all works
Blockchain isn’t free: people who are constantly using their time and energy to add new blocks to the system want to be paid for their work, and thus when you’re sending money using blockchain-based systems, you’ll be charged.
The good news is: the fees are laughably small compared to what banks will charge you, and sometimes non-existent. Enterprise blockchains like Solana will charge less than $0.01 fees, Bitcoin a dollar or two, but be careful when you choose the network you use to send money. Some networks out there will charge you an arm and a leg in fees (like this $2 5000 000 Ethereum transaction fee). Normally Ethereum is reasonable when it comes to how much it charges, but don’t count on it.
Things to bear in mind when you’re dealing with blockchain transaction fees:
- watch out for periods when fees spike (usually it’s daytime in the US since that’s where most crypto users are)
- always, always make sure you’re sending the coins to the right address and the right network (if you’re sending Bitcoin, don’t send it to an Ethereum address, for example), otherwise your money will with 99% probability disappear forever
- choose your networks carefully. For example, if you’re withdrawing money from Binance, it’ll offer you the options.
Blockchain is a clearly superior system to classical money for a variety of reasons we described above.
It has a clear potential of changing the world for the better, and thus we’d really like to see increased adoption of it all over the world - or even integrations with the existing monetary systems.