It’s been a while since Part 3, I wanted to be very sure of this section so took some time to personally invest further into different crypto’s to make sure I understood the basics, there is still a lot to learn but let’s start with blockchain, this was first described by its mysterious author Satoshi Nakamoto in his white paper “Bitcoin: A Peer-to-Peer Electronic Cash System”, published in 2008.
Due to the amount that needs to be covered and broken down we’ll keep these blogs short.
When we discuss blockchain, we introduce several key words which need to be explained, Hash and Nodes.
The concept of the blockchain is to ensure that everyone ‘sings off the same hymn sheet’, the only way for this to happen is if everyone agrees and keeps a copy of the same record of transactions (or ledger).
Lets jump back to our island for a moment. If I give a chicken to Fred passing ownership to him, this is witnessed by John and John tells everyone else that the the chicken has now transferred from me to Fred, now everybody has the same information. Fred can do what he wants with his chicken, but I no longer have the chicken so cannot give it to anyone else or reclaim it back.
In this scenario the information that John tells everyone to describe the chicken transaction would be referred to as the Hash, this would contain specific information about the chicken, me and Fred, everyone has the same hash data so there is no confusion. Everyone in this scenario would be described as Nodes, however it would take quite a long time for everyone to get the information and if we had a rule to say that the transaction could not be agreed until all nodes had verified then we would be waiting a very long time.
Not everyone really needs the full details , so we would have several key trusted people who hold the full information and are able to verify with each other that the data is correct, these would be described as full nodes. We could then say that once 6 ‘Full Nodes’ are in agreement then the transaction can be approved.
That’s a very basic description and not strictly accurate, in reality Hash in Crypto are far more complex, designed so that no two hashes of information can ever be the same, with added cryptographic security.
Bitcoin was the first and remains the most well known crypto currency, it works on a peer to peer concept, so just like me, Fred and the chicken, we didn’t have to go through a third party or centralised system to make our exchange, so it is described as decentralised.
Like most crypto currencies, there is a controlled supply of Bitcoin and will only ever be 21 million coins in existence so they can’t be debased, in addition they are described as portable, durable, divisible, recognisable, fungible, scarce and difficult to counterfeit.
Just like hard cash, Bitcoins are kept in wallets, these are electronic wallets or safes that you hold the private key to, loose the key and you loose access to the wallet and its contents, these are then lost forever, therefore very secure and in your direct control.
Next time we will look into setting up a wallet and buying crypto.