Blockchain 101

Blockchain Technology comes with a bundle of mouthful terms such as consensus protocol, decentralization, scalability, atomicity, sybil attack, distributed hash table and so much more. While I do not intend on covering these in this article I want newbies and non — technical people to study this and then at least be able to read something about Bitcoin or Ethereum and be able to somewhat make sense of what is happening and what to search further. As to be able to question something one must first be able to form the questions in the first place.

What does the article consists of:

1. I would like to introduce a few keywords and clear the most popular misconceptions.
2. The topic will also include examples making it easy to visualize and understand the concepts.

With that being said this article isn’t meant to cover all the terms associated with blockchain and covers only the very basic.

Blockchain representation

Blockchain Lingos

Depending on the readers exposure to technical terms the description below may go over the head so I would suggest reading the definitions and the examples more than once. Feel free to express love or hate.

• Blockchain:

Blockchain like the name specifies is a chain of blocks. Each block represents information so a blockchain is like a chain of information. A blockchain can be thought of as a ledger that hold all the transactions that took place.

Quite mouthful but bear with me.

• Ledger:

A leger is a collection of records. Your bank statement is your personal ledger that hold data about cash flow.

A ledger in the blockchain space are the database that is immutable meaning not changeable, transparent, shared and decentralized meaning not stored in a single place rather distributed across the users of the blockchain system.

Blockchain is decentralized and hence there is no central place for it to be stored. That’s why it is stored in computers or systems all across the network. These systems or computers are known as nodes. Each of the nodes has one copy of the blockchain or in other words, the transactions that are done on the network.

Meaning each node has a copy of the ledger.

Having a ledger is a piece of the pie that allows the blockchain to function without any centralized authority or body.

• Blockchain network:

Blockchain network is a group of nodes (computers) that are all connected to other computers in the same network via a protocol called P2P i.e peer to peer with the same configurations and following the same rules specified in the network.

The rules followed by each network is known as consensus protocol and this is another piece of the pie that allows the blockchain to function without any centralized authority or body.

A real world example would be all the students in a class are on the same network because they all study in the same classroom. And now the class has a rule/ consensus protocol that only allows new students to enter the classroom (network) and study in the class (do transactions in the network) after the end of each period. Or allow teachers to teach for one period at a time.

P.S Blockchain consensus protocols are much more complex than this and this is quite frankly an inaccurate example but I believe is a good place to start.

• Bitcoin:

Bitcoin is a technology and a cryptocurrency that is based on the core concept of blockchain. Meaning bitcoin also has a chain of blocks each storing some data, the network or the bitcoin network to be precise also has a transparent, shared and immutable ledger.

The students and teachers that are inside the classroom are part of the classroom network. Similarly Bitcoin network exists and miners and users can join the network and be a part of it.

Another popular and a standard example of blockchain is Ethereum. It is similar to Bitcoin in the sense that it is also a cryptocurrency and has its own network.

The Ethereum network is different from the Bitcoin network as it has it’s own rules and configurations. And each will have their own cryptocurrency.

• Cryptocurrencies

Cryptocurrency also called crypto is a reward and is a virtual currency meaning it does not have material form. It is given to the miners for doing the work i.e creation of a new block.

The blockchains mentioned above have their own cryptocurrency. ETH for Ethereum and BTC for Bitcoin. And each is valued at a certain USD and is constantly fluctuating. As of time this article was written the prices are:

1 ETH = 381.49 $

1 BTC = 13491.85 $

In the classroom example let us say that students who study in it give CLASS cryptos at the end each period to the teacher who is teaching them. Similarly, user and miners who perform activities (transactions and mining) in the blockchain networks will spend or earn respective network crypto. Users will spend crypto as gas for performing transactions and miners will earn cryptos for creating a block that contains the transaction in it.

• Mining

Process of creating a new block on the network. A block is created as per the rules specified in the consensus protocol.

• Miners

The person or the hardware i.e the nodes responsible for creating the new block. A miner is identified by an address which looks something like :

0xf61de9567C7F1144a7B9688E2F55Aab4FaEfc176

These addresses are all that is used for identification on all blockchains. They have no name, numbers or personal information attached to them.

Each student in the classroom as well as the teacher will have their identifications as per the address and nothing more.

An example linking to the classroom network would be that the class monitor at the end of the period will create a block that has all the lecture details in it. The monitor create a block for the classroom network and can be considered to be miners and the process of creating the block is mining.

• Transactions

Any task done on the blockchain that results in sate change or addition of states is called a transaction.

P.S: Reading state is not a transaction.

Bob sent Alice 1 ETH on the Ethereum network is a transaction of that network. A new block is created which has the transfer transaction stored on it.

In the classroom network a student asking question to the teacher is a transaction or students talking to another is a transaction. Each transaction requires gas to perform which are paid in the network cryptos and all of these transactions will be included in a newly generated block.

Transtion1 : Bob asks the teacher a question.

Transaction 2: The teacher answers the question.

Transaction 3: The teacher also warns Alice to not sleep in the class.

All these transaction will then be included in the next block mined by the miner of the classroom network which can be the class monitor.

• Block

Block is a single unit in a blockchain and each block contains multiple information. A blockchain is made up of multiple blocks linked together. Some of the information contained in a block are: transactions stored on it, the address of the miner, the reward given to the miner, the block number and more.

A block holds the address of the block that exists previous to it in the chain. Hence a chain of block is formed aka blockchain.

• Gas fee

Gas fee is the amount in crypto that is sent by the individual who wants to perform a transaction on the blockchain. It is sent as a compensation for the miners who use their resources for creating the block which has the transaction stored on it.

Example to visualize

Let us link all that we learned with an example.

If Bob wants to send Alice 1 ETH then first we must understand that the task being done is in the Ethereum network. Bob now creates a transaction and also sends some gas fee. Then the miners will compete with other miners for the task of mining the transaction in the network and to do so must solve a complex mathematical problem and the miner to first solve this problem creates the block that says, Bob sent 1 ETH to Alice and the block is then linked with the previous block and on linking it gets added to the chain of blocks. This way of solving a mathematical problem is called PoW (Proof Of Work) and is a consensus protocol of Bitcoin and Ethereum. There are many other consensus protocol but discussing these is not the scope of this article.

All the nodes in the network will add this new block i.e new information to their own local (local can be considered to be like a garden in your home, others can see it but it is yours) chain of blocks or blockchain. In this way all the nodes/users will have the same state of blockchain and this is also how the consistency and safety is maintained in a decentralized network.

The miner will be given certain cryptocurrency i.e reward, eg 0.456 ETH for using his own resources which are electricity, computer memory and time to create a new block and the person performing the transaction will send gas fee which will be used to pay the miners.

The most popular misconceptions is:

1. “Bitcoin is blockchain” which is partially true as it is a blockchain but it is not the only one. There are multiple blockchains, Ethereum, Hypderledger, Zilliqa and many more. Bitcoin is also a cryptocurrency whereas the technology of blockchain contains more than just cryptocurrencies.

So, the correct statement would be “Bitcoin is a system developed using the fundamentals of blockchain” or “Bitcoin is the application of blockchain”.

Hope you enjoyed the article because I certainly did writing it.