Blockchain, Internet of Things, Smart Contracts, cryptocurrency, Bitcoin, Satoshi, peer to peer.
You’ve probably heard these words more and more over the last year or so, you might have even had them explained to you by your local tech geek. We all know one right?
That smug git that bought crypto a few years back when it was silly internet money and now smirks like a Cheshire cat when anyone mentions it.
Guessing you haven't heard from them since mid-November?
JobsFactor Explains is going to help you understand what blockchain is, all of the words mentioned above and most of all, why you should be keeping an eye on Blockchain Jobs.
First of all, lets address the stupid question that everyone feels too silly to ask:
“Blockchain and Bitcoin, aren’t they kind of the same thing?”
Don’t feel silly. This fast paced new industry is full of jargon and isn’t easy to understand. Unless you have a handy JobsFactor Explained article handy. In which case you can practice your smug grin as your friends scratch their caveman heads at your newly acquired knowledge.
The term blockchain gained popularity due to the cryptocurrency movement, and Bitcoin is one of many cryptocurrencies. However it can be used in many other areas and businesses are now tapping into the limitless potential of Blockchain.
Here we cover the basics of how blockchain came to be, its relationship with crypto and some of the most common questions surrounding this disruptive new industry.
Who started blockchain?
Satoshi Nakamoto was the author of the ‘white paper’ which outlined the plan for Bitcoin and using the blockchain.
You can check it out here: https://bitcoin.org/bitcoin.pdf
What is a blockchain?
A block chain is literally a digital chain of blocks containing information.
Imagine a ‘shared sheet’, like a Google spreadsheet. Set up so that anyone can add to it but nobody can delete anything.
When did blockchain start?
The concept has been floating around since the early 90s. The first use of a blockchain as we know it was on 3rd January 2009 for the Bitcoin Network.
Where is a blockchain kept?
Although this sounds kind of Morpheus-from-the-Matrix-esque, it's everywhere and it is nowhere. A copy of the blockchain exists on every computer on the network. No one person has more control than any other. There’s no central computer controlling it.
Why do we need blockchain?
The main use for a blockchain is to store information so it can never be tampered with. We will discuss some other industries and their uses for it in our later blog post.
How does blockchain work?
Every computer on the network helps to maintain the network by checking the accuracy of the data. So if one tries to change something, its kicked off the network and can only rejoin with the ‘real’ copy of the blockchain.
So you’ve got the basics. Any clearer?
If not, keep reading as we go through some of the more detailed questions most people ask:
Why is a blockchain so secure?
It utilises three key processes called hashing, proof of work and peer to peer to make blockchain a distributed ledger technology.
What does that even mean?
Good question, below we break down all of the terms used in this sentence. However it’s a good time to mention that lots of people call this ‘distributed ledger’ technology.
Let’s use the Google spreadsheet example.
The spreadsheet itself is a ledger, it keeps track of whatever you want to put on it, let's say you want to swap Pokemon Cards with your mates, if you’re still into that.
Every time you swap the cards, you write a new line on the sheet:
“Adam swapped Pikachu with Brian”
“Brian swapped Pikachu with Charlotte”
“Charlotte swapped Pikachu with Daniel” and so on.
If you used this sheet, you could see exactly where little Pikachu has been, and who it came from.
Now if you allow Adam, Brian, Charlotte and Daniel to all post their trades on there, then it’s now a distributed ledger. Follow?
Finally, you set it up so there is no admin, everyone can add, nobody can delete. Now it’s equally controlled by everyone. They all have a copy and it’s a trustworthy ledger.
So if sneaky Charlotte makes a fake Pikachu card and swaps it with gullible Brian, then Brian, Adam and Daniel can check the sheet and see that Daniel has the true Pikachu, so doesn’t fall for Charlotte’s dastardly trick.
They kick Charlotte out of the swapping group, until she agrees to play fair and only use real Pokemon cards. They forgive her, she comes back, plays nice and everyone is happy.
What is in a blockchain block?
Simply put, a block contains data, hash and previous block hash.
Data can be (lets use the Bitcoin example): the sender, the receiver and amount of coins being sent, for a chunk of transactions (usually around 500).
Hash is like a digital fingerprint for the block. If the block is tampered with the hash changes, which makes it tamper-proof.
Previous hash is the hash of the last block, which is there so you can follow the chain.
What is Bitcoin?
Cryptocurrencies are currencies that are secured using cryptography.
Bitcoin is digital cash which uses the blockchain to keep record of all of the transactions and to monitor and control the creation of coins and inflationary rate of production.
Before the 70's, currencies like the dollar were backed by gold which gave it value. The reason it was valuable is due to the scarcity of gold. Bitcoin is scarce and valuable as there will only ever be a certain amount (21 million).
Cryptography is used to keep the users identity safe, ‘mining’ of new coins and to verify the existing transactions.
If its a chain, where did the blockchain start?
The first block is known as the genesis block. It’s unique in the chain.
Funnily enough, the data contained in the first Bitcoin block was the text of The Times article on 3rd Jan 2009 “Chancellor on brink of second bailout for banks” as both proof of the date of creation and also a comment on instability caused by the fractional reserve banking system.
What happens if a blockchain is hacked?
In order to hack the chain, you would need to find and change the block you want to tamper with, update every block that came after it so the network thinks your block is valid, then redo all of the proof of work for every block, and take over 50%+ of the peer to peer network to approve your own amendment. In other words, practically impossible.
As the data is changed, the hash changes and therefore the rest of the chain is invalidated. Meaning not only will the hack be noticed immediately but the offending machine will be kicked off the network (like sneaky Charlotte with her fake Pikachu card).
Proof of Work, what is that?
In order for a transaction to be validated and new blocks created, you need some ‘work’.
The ‘work’ is what the miners do. Miners use their computer processing power to confirm the validity of the transactions on the network. When they do enough of these, the old block is full and is closed, a new block opens to be filled with transactions.
Miners compete to do the work on the network, as they get a small reward for completing the work.
This slows down the creation of new blocks making it much harder to hack the chain.
What is peer to peer?
Remember the days before Spotify when you used to have to get your music from stores or iTunes? How about when you could illegally download full albums or discographies using LimeWire, PirateBay, Napster, BitTorrent etc? Well the reason this was possible was that a peer (person having a copy of Prince’s Greatest Hits) could upload this file to the site and another peer (the Prince fan that doesn’t want to pay for the album) could download it from the site.
The same applies to blockchains with transactions. If you want to send money to a friend, you take the cash, deposit it to your bank, send it to their bank and they withdraw it. Peer to peer would be the equivalent of you giving them cash, without using the banks.
What are Smart Contracts?
These are programs that are stored on the blockchain that allow the exchange coins or value, without using a third party. This makes the agreement irreversible and traceable. Smart contracts are blockchain based contracts that hold both parties accountable by only completing the terms of the agreement once both parties have fulfilled their end of the bargain.
Basically they say “If this happens, then do that.”. Here’s an example of that in action:
You rent a car, from a supplier that allows you to use a smart contact:
In this example you’re connecting the fees, insurance, the asset or car and the police, with no admin work. If the driver pays for 7 days then returns the car then great, they’re insured. If they don’t return after 7 days, the driver cannot abuse the rental contract and the police can stop the car.
What does the Internet of Things mean?
The IoT is basically a network of connected devices. As our devices get smarter and get connect to the internet, they can interact and exchange data. The blockchain can govern how they communicate with one another and how they remain secure, which is particularly important if the devices hold sensitive financial information and want to share that data.
An example would be that you can now use smart meters, bulbs, sockets, speakers and TVs in your home. So from your sofa you can turn up the heater, switch on the bedside lamp, dim the living room lights, put on Barry White and switch on a Disney movie while you cuddle up with your dearly beloved, you smooth devil.
Frighteningly, it’s been proven that some modern cars can be hacked into and controlled using the IoT network, which isn’t a very comforting thought.
Blockchain and the distributed ledger can help to keep devices secure and protect your sensitive data from being accessed via more vulnerable devices.
Conclusion
Blockchain and cryptocurrencies challenge financial, political and institutional corruption as well as ensuring trust, security and efficiency.
This has the potential to create massive social, economical and industrial change. Many more businesses are integrating blockchain, distributed ledger and smart contracts.
Are you one of them? Are you working for a business that does?
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