Inevitably, the internet was the inception of the technology revolution. It changed everything – the way we research (Google), shop (Amazon), entertain ourselves (Youtube), connect with one another (Facebook), and make payments (Blockchain).
As defined in the previous topic, cryptocurrency doesn’t require a middleman to transfer funds from one user to another. The technology that cuts out this intermediary regarding payments and the transfer of value is blockchain.
In centralized systems, like a bank’s database, the bank is responsible, has authority to maintain its data, and ensures security. They are responsible for updates, licenses, and more.
Centralized systems rely on people to operate, while decentralized systems don’t. Blockchain users rely solely on the technology they code to make the decisions instead. Blockchains’ decentralized systems have no single point of authority. Therefore, the technology and network participants called nodes must be approved and update transaction records and ledgers. Each blockchain has its own way of running but a common way to explain nodes is through the Bitcoin blockchain. This blockchain relies on nodes which are computers running software that authenticate transactions occurring on the Bitcoin blockchain. For transactions to be processed/authenticated, several nodes have to agree on the state of the transaction, technically known as ‘reaching consensus’.
Blockchain was first introduced by a person or group who went by the pseudonym, Satoshi Nakamoto. Satoshi created the first blockchain system along with Bitcoin. It’s also worth noting that pre-Satoshi, several notable individuals made the creation of Satoshi’s blockchain possible:
The consensus mechanism (the way decisions are made about transactional data) and immutable nature of data that lives on the blockchain make the technology secure and practically impenetrable. Wallets, however, can be hacked, so it’s imperative to have very secure passwords like with any account that holds money.
This is a great quote to further understand the importance of blockchain:
Blockchains are often categorized into four groups
Public networks are permissionless blockchains maintained by public participants. They have no central authority which allows anyone to become a node. (Bitcoin, Ethereum, Litecoin, etc.)
Examples include the following:
And many more.
Private blockchains, such as Corda, are referred to as ‘permissioned’ because the network is only available to “permissioned” users.
A single organization controls hybrid blockchains, but a public blockchain is required to perform transactions.
Consortium blockchains are private blockchains governed by a group of organizations instead of one single entity, which is usually the case of private blockchains.
A Blockchain maintains a record of each transaction and removes the need for a middleman or central authority when trading cryptocurrency. Because of its versatility, it can be used for many purposes including, data management, establishing a digital identity, and commerce. To fulfill these functions, various types of blockchains exist. An example is public blockchains, which house coins such as Bitcoin.
In the next topic, we’ll apply our knowledge of blockchain to how Bitcoin became the most bought and traded cryptocurrency in the world. We’ll also talk about three different types of cryptocurrency that operate on these blockchains: Bitcoin, altcoins, and tokens.
Note: As you move through the module, the topics will continue to elaborate on what we have covered so far. Soon you’ll have enough knowledge to smack down that business school grad who won’t shut up about Doge.
Clutch is a social-DeFi crypto wallet that has been built with a mission of bringing more women into crypto. We are immersing ourselves in the crypto space to continue bringing our community the most up-to-date information and instruction on how they can safely and confidently invest.