Cryptocurrency for Dummies Series – Ep. 2: BLOCKCHAIN

In this video you are going to learn what
a blockchain is, how it works, and why it is so secure. Stay tuned! Welcome to the episode two of cryptocurrency
for dummies series. A playlist for other episodes can be found
in the description. If this is your first time here, take care
of your finances by clicking the subscribe button! So let’s get started, what is a blockchain? Blockchain is a chain of blocks, thus the
name blockchain. No they are not really blocks and chains in
their real context. The blocks are a digital information that
is linked to other blocks with a verifying process. A public database is used to verify the blocks.

Public database means that it’s available
for everybody. Yes, even you can access it. Blocks store information about transactions. For example every time you exchange bitcoin,
the transaction is stored in the block. This way you can’t spend the same bitcoin
twice, when you spend it it’s gone. Blocks also store information about who is
doing the transactions. If you spend bitcoin a block records your
public key. Public key is kinda like your name, everybody
has a public key so your real name or any other information won’t be shown to everybody. Each block also has a “hash”. A hash is a unique code that separates blocks
from each other. Every block also has a hash from the previous
block, this way the blocks can be connected. So how does the blockchain work? As mentioned, blocks store information about
transactions. So for a blockchain to work, we must have
a transaction first, like spending bitcoin for example.

After that the transaction needs to be verified. With bitcoin, verifying a block takes about
10 minutes. The transaction is verified with a network
of computers. Because of this, the information is in a public
database that everybody has access to. This verifying process is called mining, more
about mining will be in the next episode of the series. Because the database is available for everyone,
it makes blockchain very secure. The more people there are verifying the transactions,
the more secure it gets. After your transaction has been verified,
it gets stored in the block. And lastly, the block is given a hash, aka
the unique code that separates blocks from each other. The block is also given the hash of the most
recent block added to the blockchain, this way those two blocks will be “chained”
together. When the block gets added to the blockchain,
it becomes available for anyone to see.

Let’s take a closer look on why the blockchain
is public. Everybody can connect their computer to the
blockchain network. This gives their computer a copy of the blockchain. The blockchain gets automatically updated
every time a new block is added. Because everybody can connect their computer,
it means that there are thousands or even million copies of the blockchain. This is what makes cryptocurrencies so secure. You can’t manipulate the blockchain, because
there are so many copies. You would need to manipulate every copy of
the blockchain. Good luck with that! Also, as mentioned earlier every block has
a hash, and a hash of a previous block. So if you wanted to hack one transaction,
it would change the hash of that block, which means that it wouldn’t connect with the
next block.

So if you want to change one transaction,
you would have to change every block after that too. But why has bitcoin been hacked then? When bitcoin gets hacked, it’s not the blockchain
that gets hacked. Because hackers know it’s nearly impossible
to hack blockchain, they are hacking websites that hold people’s bitcoin. So if you keep your cryptocurrencies on some
website, it is not as secure. If you store your cryptocurrencies in your
own computer, or in usb-drive for example, you won’t get hacked, unless you lose your
computer or that usb-drive. But what about that public key that everybody
is able to see? Can’t they use it to hack your cryptocurrencies? No, they can’t.

Everybody also has a private key, which works
like a password. Think about your house for example. A house is your public key, that people can
see. But they need a key to get in. Even though blockchain is very secure, it
is theoretically possible to hack it. Because there are thousands of copies, some
copies could differ from others. Because of this the blockchain uses a process
called “consensus”. This means that the blockchain is always the
one that most users trust to be the right one.

So to hack a blockchain, you would need to
be able to control over half of the copies. This is called 51% attack. Let’s say there are 10 copies, and a hacker
gets control of 6 of them. Now the hacker controls the majority of the
copies, so it is possible to change the blocks. But this is more theory than possible, with
bitcoin for example you would need to control millions of computers. Because you would need to control 51% of the
copies to change the blockchain, it also makes the blockchain very accurate. There is pretty much no human involvement
in the process, so if somebody does a human error, or if somebody’s computer manages
to make a mistake, it won’t affect the blockchain, because other computers won’t make the same
mistake. Let’s summarize the video with one basic
example of blockchain.

Here we have 2 blocks. Inside the block is the data of transactions. Each block has a hash and a hash from the
previous block. So now these two blocks can connect, because
the hash of the first block matches with the previous hash of the second block. But what about the first block, when there
is no previous block with a hash? Well this block is a unique one and it is
called a genesis block. Now when a new block gets added, which takes
about 10 minutes with Bitcoin, it has a hash of a previous block, so they can connect. This makes blockchain very secure, to manipulate
the data you would have to change every block after the one block that you are trying to
manipulate. So here if you change the 2nd block, the hash
also changes, so now it doesn’t match with the third one. To manipulate a blockchain, you would have
to be able to control 51% of computers, so the most trusted blockchain would be your
manipulated one.

Because of this, the blockchain uses public
computer network. It’s very difficult for one group of hackers
to own millions of computers. This also makes the blockchain accurate, one
human or computer error won’t chance the blockchain, when a million other computers
don’t have that error. So that’s it about blockchain, feel free
to ask in the comments if you have any questions! Next episode will be about cryptocurrency
mining, subscribe and you’ll be the first to know when I upload that! While you wait for that video, feel free to
check out my other videos shown on the screen! Have a great day and I’ll see you later!

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