When people say the word “blockchain,” sometimes they are referring to the original blockchain (Bitcoin) and other times to the technology. Even for people well-versed in tech, the world of blockchain can be confusing. Without blockchains, cryptocurrencies would not exist. In essence, blockchains act as secure digital ledgers for digital payment systems (cryptocurrencies).

True blockchains are decentralized. Their development does not rely upon one entity. Many independent computers must agree to change the network rules in order for the process to work. Information is readily available on decentralized databases without permission from a “central” authority. A key blockchain feature is the ability to remove human error from the trust equation and replace it with computational mathematics. This is done by using algorithms to synchronize computers to validate transactions.

Bitcoin

Bitcoin is both the name of the blockchain and its cryptocurrency. It solved the double spending problem for online transactions. When two computers claim a transaction, only one is added to the blockchain and then synchronized with the rest of the network. Here is where the idea of a 51% attack comes in. It refers to 51% of the network’s computers agreeing to change the rules. Bitcoin is an open source on Github which allows anyone to change its program.

The advantages of Bitcoin include being the original innovator of blockchain technology, counterfeit-proof, divisible currency, easy transactions, and permissionless. However, Bitcoin is not perfected. It has been plagued by high user fees and scalability issues, which has contributed to the rise of alternative types of cryptocurrency.

Ethereum

Ethereum is the blockchain that revolutionized smart contracts, which facilitated the entrance of new ICOs. Smart contracts eliminate the need for third parties. Both parties must fulfill their end before funds are released. The currency, Ether, is used to power the ecosystem so that codes have life spans.

The purpose of the Ethereum platform is more than a payment system. It is meant to run decentralized applications (dApps) on a peer-to-peer network of computers. Before blockchains, P2P networks ran dApps so that software programs would not be controlled by one authority. BitTorrent is one of the most successful. The advantages of using dApps include independent payment processing, user credentials securing public/private keys, large database storage, log records, and trusting the code rather than humans.

Another fundamental aspect of blockchain technology are “wallets.” They facilitate sending and receiving coins in a secure fashion. While not compatible, many services carry multiple wallets as long as users hold independent keys.

Here’s a simple introduction to blockchain, but there’s much more you can learn. There are plenty of resources available online that give more depth to these topics. This newsletter is a great place to start and helps breakdown blockchain in a simple way.