Blockchain and Cryptocurrencies in Simple Terms

Not everyone in a business needs to know how software looks under the hood and that now applies to blockchain as well. This article explains in simple terms the basics for blockchain and cryptocurrencies.

About this article

At TechHQ we increasingly need to explain blockchain and cryptocurrencies to non-technical people. This is a sign that the field is becoming more mature and the existing materials are too complex for many. Not everyone in a business needs to know how software looks under the hood and that now applies to blockchain as well.

The intention of this article is to explain in simple terms the basics for blockchain and cryptocurrencies, so that we can have a better conversation with business owners and experts from fields other than computing. The words in bold are the only technical terms in this article that you need to make sure that you pay attention to.

I’ll be simplifying everything as much as I can, but where I leave things on the side I’ll try to provide some ideas in italics to expand your knowledge in that direction.

What is a blockchain?

The easiest way to describe a blockchain is as a special kind of database. A visual representation of a database is usually a set of spreadsheets with rows and columns. A blockchain database can be visually represented as a chain of blocks, with each block containing some of the information that we want to store and a link to find the previous block in the chain. Applying some cryptography magic to the way that these blocks are linked means that any updates to data already in the blockchain would be obvious to anyone bothering to check.

Some blockchains such as Ethereum and EOS have more capabilities than just being a database, but let’s leave that for later. Likewise, here you might want to learn about cryptography hashes, merkle trees, turing-completitude and so on, but that knowledge is important only to blockchain designers and blockchain engineers, so if you are not one of those you can safely proceed.

Another important feature of a blockchain database is that it is decentralised. A decentralised application is built to be run simultaneously in many computers that communicate between them to achieve some common goal, but in a way that no one can decide on the actions of anyone else. Often there is some kind of mechanism in such applications to identify and punish those that don’t contribute positively to the network. The music sharing networks that grew immensely popular from the late 90s had a decentralised architecture and proved incredibly resilient to any efforts to stop them.

The way that decentralised blockchain databases are often built is by copying the whole database to a large number of different computers, owned by different people or organisations. These computers are in constant communication doing two things: Agreeing what data to add next, and checking that no one has changed any of the data that was already in the database.

The blockchain structure of the data guarantees that no one can change data in the database without being obvious, the decentralised architecture of a blockchain platform ensures that there is always someone checking that the data is still valid and that in the event of an attack there are plenty of copies of unaffected copies of the database to ensure continuity of the service. These qualities allow blockchain users to trust the data, without trusting anyone in particular.

If you want to go deeper, now is the time to research the Byzantine Generals Problem and consensus algorithms of which proof of work is one.

At the most basic level, you have read what a blockchain is, it is a database that is replicated to a number of computers, with no one having exclusive control. The data in this database is immutable in the sense that any unauthorized changes to it are obvious. A decentralised blockchain allows us to force different users of the software to trust the data, even if they don’t trust anyone else in the network.

In many aspects of life there is some intermediary that solves the problem of people not being able to trust each other, and an easy example is money.

What is a cryptocurrency?

Cash money are physical tokens that are created by a single central actor and that you are forbidden from creating yourself. The money in your bank account is just numbers, but your bank keeps track of your balance because you can’t be trusted to do it. Adding a few zeroes to your own account balance would be very tempting.

A currency can be created in a blockchain, and is then called a cryptocurrency. When the currency is first created someone decides how many units exist in the blockchain, allow people to create accounts that keep cryptocurrency units, and allow account holders to transfer currency to each other. All these transactions are kept as data in the blockchain.

A blockchain is immutable and decentralised. The computers running the blockchain keep full copies of the transactions done in the cryptocurrency from the beginning of time, and as new transactions are requested they check that they follow the cryptocurrency rules and agree all together to add them to the transaction log. The cryptocurrency accounts and transactions kept this way in the blockchain can be trusted to follow the same rules as any normal currency.

Now would be a good time to hit the internet and find out other applications being built on top of blockchains apart from currencies.

Putting it all together

That was quite a trip, but it can be boiled down to the fact that a blockchain is a decentralised database, and that one of the things that you can do with it is new currencies that have a life of its own without anyone taking a controlling role. These new currencies and the applications they support follow exactly the same rules as the economy in the physical world and can spawn communities equally complex and productive.

By design, blockchain databases are available to use by anyone with an internet connection. Bitcoin and Ethereum are two public blockchains that anyone can work with, and anyone can add data to. The data and transactions anyone stores in Bitcoin or Ethereum can’t be modified by anyone else and becomes available to be safely used by everyone else in the world. Anything that is built on top of a public blockchain immediately has a global reach.

Finally, cryptocurrencies and the applications that they support are not confined to some internet bubble. Exchanging physical currencies with cryptocurrencies is not a challenge anymore, accepting payments in cryptocurrencies is increasingly safe, and assets in the physical world are starting to be legally recorded in blockchains to facilitate trading.

This closes the loop and explains why so many people are excited about blockchain and cryptocurrencies, suddenly is like a new world with new rules and opportunities has been discovered, and its economy is already connected to that of our old physical world.

Thanks for reading this much, if you want to know more please feel free to contact us at TechHQ, we love helping people out. Or if you are the one that would like to help us, now is the time, we are hiring!

This article was originally published on the TechHQ blog.