What Is Blockchain
Hello, and welcome to the lesson.
In this lesson I want to explain what a blockchain is.
I feel that the best way to explain what a Blockchain is is by using an example.
Let’s say that this Google Docs spreadsheet is my Bank account — a bank account which I have just opened.
Now let’s assume that I started my first month of work in a job that pays me $3000 every month.
So when my boss pays me my first $3000 salary, this money goes into my bank account inside the Income column — I will add $3000 now to the cell inside the income column, and to the cell inside the balance column.
So now both me and my bank can see that my current Bank balance is $3000.
Ok, so let’s say that I now want to buy a $1000 laptop, for example, and I don’t remember if I have enough money in my Bank account. In this case,I can view my account balance (though an ATM machine for example) and see that I have enough money to purchase the laptop.
My bank also has access to my spreadsheet (aka my Bank account), and will also view my account balance when the store will try to charge my debit card (meaning my Bank card) The Bank will then see that my account balance covers the laptop cost, so it will approve the transaction (and update the bank records accordingly).
So like in a Google Docs online word processor that gives multiple users the ability to view the same data on a specific spreadsheet, both me and my Bank can view the same data in my Bank account.
Now, due to the great financial crisis, the Internet becoming popular, and the fact that many people didn’t want to rely on Banks for financial transactions, a new concept has emerged which is called: Blockchain.
The Blockchain system works in a very similar way to how the Bank system works, yet with Blockchain there is no bank involved, and all the transactions are recorded publicly on the Internet.
With Blockchain, there isn’t any Bank computer that stands between two parties (in our example, me and the Laptops shop) and decides whether to approve or disapprove a transaction.
What there is is a public record, and the people from around the world who use the Blockchain system.
Every blockchain user has a digital wallet (which is similar a Bank account)
When we use Bitcoin to pay for an item or a service, computers on the Blockchain system monitor the transaction, and decide whether the transaction should be approved or not.
The approval decision is based on the payer digital wallet balance, and the computers that approve and disapprove transactions belong to people who are called Miners (like people who work in a mine).
Those Miners are people like you and me, who get paid for using their computers’ processing power to solve computational problems — like validating transactions, and documenting those transactions.
So the Blockchain is similar to a database, yet it is a ledger. The difference is that the Blockchain ledger is not controlled by a central authority (like Google, Apple, Microsoft or any other company)
It is a network of computers (that belong to miners) who constantly monitor each and every transaction that occurs on the Blockchain network, decide whether each transaction should be approved or not, and instantly update the Blockchain ledger accordingly.
It is also important to know that unlike a regular database, the data inside the Blockchain database can’t ever be edited or removed.
Now the Bitcoin Blockchain is not the only system for digital currency exchange, and Bitcoin is not the only digital coin that people use.
There is also the Ethereum blockchain, and on the Ethereum blockchain people exchange a digital coin that is called: Ether, and a digital asset that is called…NFT (a digital token that represents ownership of a unique digital item).
Let’s now change our previous example, which was about the Bitcoin Blockchain and using bitcoin to buy a physical laptop from a shop owner in a physical shop, to an example about the Ethereum blockchain, and about using Ether to buy a an NFT (in this example a digital image) from an online seller on an NFTs website.
If I decide that I want to pay 1 ether for an NFT image, then all the miners computers that are connected to the Ethereum blockchain will access both my account and the NFT’s seller account and will try to validate two things:
- That I have enough Ether in my digital wallet to pay for the NFT.
- That the seller really has the NFT that I want to buy in his / her digital wallet.
If both are true, then the transaction will be approved. The seller will get the Ether and I will get the NFT and a token that proves that I am the owner of that NFT.
Now, before we end this lesson, I will just summarize in a few words, what is a blockchain?
A Blockchain is a shared digital ledger, a system which documents digital transactions that take place between the Blockchain users. The transactions are validated by miners. Miners are people from around the world, who get compensated for using their computer’s processing power for validating, and documenting Blockchain transactions.
So, that’s it for this lesson, and I will see you in the next lesson….goodbye.
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