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Beginners guide to understanding what the blockchain is

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Blockchain. Everyone seems to be talking about this technology and its very close friends, cryptocurrencies, and NFTs, but do we really understand all this? Do we know what blockchain is, how it works, and what advantages it can bring us in the future?

That's what we're going to talk about today.

There is a lot of confusion and controversy about these technologies. Most people don't understand what they are about. Another significant part believes that they only serve to do questionable business in black markets. However, today we will shed some light on all this and show that the blockchain is not the nest of darkness and evil that some think it is.

What is blockchain technology?

Let's start by understanding WHAT blockchain is. The first time this technology was discussed was in 1991, and the idea was to be able to use it to validate the authenticity and ownership of documents. Unlike other forms of storing information, the data contained within the blocks cannot be changed. If it is, it is quickly discovered. Therefore, the data stored there would be safeguarded against changes, theft, copies, etc. It would be like a virtual super notary where the registry is public, accessible, and supervised by everyone who is part of the chain.

Okay, but how can something that is supposedly super-secure and top-secret be “public”? So here we have to talk about how the blockchain works and how it is formed.

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How is a blockchain formed?

First, we have to consider that, although everyone can “see” the chain, have a copy of it and be part of the verification network (we will call it nodes from now on), they cannot see details of the information contained in blocks. They can only validate if the information is correct or not. For example, if I have 10 crypto coins and I want to pay my friend 3, the only thing the nodes will do is check if I have enough cryptos for the transaction. If I do not have them, the transaction is rejected. If I do, the nodes approve it, and now it is part of the info contained in one of the blocks.

Now, how is a new block created? Let's pretend that the blocks are like boxes. To fill a box, you need several documents (data). When you get enough documents to fill the box, you have people (nodes) who review the documents one by one and say if the info is correct. Once someone validates the information, the others check it and agree on its accuracy. Then the box enters a public registry, where everyone knows that it's there and that the information it contains is accurate and reliable.

All clear on the block side, now the chain. Each block is composed of three elements:

  • Data (the documents)

  • The hash (the serial of the box)

  • The hash of the previous block (the serial of the previous box)

These serials are created simultaneously as the block and depend on the content. Therefore, any change in the block will change the serial, which will change the information of all subsequent blocks, breaking the chain and alerting of a possible attempt to alter the data.

Well, but altering that doesn't seem so complicated; there must be a way that if someone changes a serial, they can alter the following ones to make them pass as genuine. So yes, it is possible, but it is extremely difficult and could take a long time, so long that you would eventually be discovered. This is because blocks are not created at the speed of light one after another; checking these blocks takes a long time, on the Ethereum chain, more or less 10 minutes. So if you alter, say, block 100 out of 200, it will take you more than two hours to change all the following blocks. This process, known as temper, will also need that your computing power is at least equal to 51% of the entire node network. If we consider that only the Ethereum blockchain spends the same energy per hour as the country of Serbia, unless you have your own homemade nuclear power plant to produce energy for all those processors, it will be impossible to change the data of a block without being discovered.

Now, how are these checks made? We have already said that the network is public, and anyone can enter and be part of it as a node, but what is the process? Well, it is a series of mathematical problems. Each data you enter is a mathematical problem to be solved; it is only accepted and added to the chain once a computer solves the problem and the other checks the answer as correct. After the nodes check enough info, a block is added. Then, everyone in the chain can see the new block while processing the next one.

Why do people get into blockchain?

The answer to this question is quite simple: money.

When your computer solves any mathematical problems required to form the chain, you receive a payment in cryptocurrencies. The currency you receive depends on the chain you are on.

This process of solving mathematical problems to form the chain is called mining, and the people who are part of this network of nodes are called miners. At the time, the most “valuable” networks were Bitcoin and Ethereum. Still, they also require more computing power and energy, so for some people, those chains are not profitable.

Uses of blockchain

We already know what the blockchain is and how it is formed. Now let's talk a little about some of its current uses and what is believed to be used in the near future.

Cryptocurrencies

They are the most common utility of the blockchain. This type of transaction eliminates intermediaries, which would be banking in the case of the traditional economy. It allows the purchase and sale of goods and services directly between the people involved, while those who “authorize” and validate the transaction are other people within the same chain.

Learn more about cryptocurrencies and how to use them here

NFTs

Non-fungible tokens are also one of the most common uses of the blockchain.

The main characteristic of these tokens is that they are unique and cannot be replaced by another. Currently, NFTs are used as proof of ownership of digital assets such as art, music, and videos. But the technology is spreading to other aspects of the internet like the Metaverse and “play-to-earn” games.

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Document validation

Going back to the origins. The blockchain is an excellent way to store personal documents of a notarial or identity nature so that they cannot be used or altered by anyone else. In addition, it can ensure access to them anywhere or safeguard a digital copy in case the physical record is destroyed.

Elections

This can be one of the most controversial and interesting utilities. Elections in many countries tend to be controversial, with various parties accusing each other of committing fraud. The blockchain could ensure greater transparency since the data could not be altered without someone noticing it. In addition, all the people who are part of the nodes could act as regulatory entities that would ensure greater transparency at the time to give the results. However, there is still time to see this kind of software widely extended.

Personal information

This would be an excellent way to store personal data, similar to document authentication. A kind of virtual ID where you can choose how and with whom you share personal information such as personal data, medical history, etc.

Blockchain downside: environmental impact

We have already seen all this technology's advantages, but it also has problems and staunch detractors.

The biggest issue of blockchain is its effect in the real world as a significant source of pollution and energy expenditure. Likewise, most of the time, the exceptionally high costs of the energy used by being part of this chain cannot be covered by the profits produced. In other words, even if the chain is “public,” not everyone can afford to participate because these problem-solving operations can't be done with a spare laptop. The bitcoin chain, for example, needs a processor designed exclusively for this function, and it can cost several thousand dollars.

Even if you enter another chain that doesn't need as much computing power, you still have to have your PC ON day and night, which consumes gigantic amounts of energy, and your bill will skyrocket. Not to mention that fossil fuel sources are often used to produce the necessary power, producing waste such as CO₂, which is tremendously harmful to the environment.

At the moment, a lot of people are investigating how they can make a blockchain that reduces their energy consumption, takes their energy from renewable sources, or even that is zero emissions. This technology could mean a fundamental shift in understanding virtual security, data, and information exchange if this change is achieved.