🚨 Time is Running Out: Reserve Your Spot in the Lucky Draw & Claim Rewards! START NOW
Learn to gain real rewards

Learn to gain real rewards

Collect Bits, boost your Degree and gain actual rewards!

New
Video Courses
Video Courses
Deprecated
Scale your career with online video courses. Dive into your learning adventure!
Learn to gain real rewards

Learn to gain real rewards

Collect Bits, boost your Degree and gain actual rewards!

New
Video Courses
Video Courses
Deprecated
Scale your career with online video courses. Dive into your learning adventure!
What is Blockchain? The Beginner's Guide

Since Bitcoin was created in 2009, the world has gone crazy for cryptocurrencies. In fact, there are now more than 1,500 different coins available to buy, sell and trade! However, the most important thing to come from all of this so far is the technology that underlies it — blockchain technology. So, what is blockchain?

If you would like to find out what is blockchain in a simplified format, you’ve come to the right place! Although the technology is quite complex, I am going to use real-world examples and as simple vocabulary as possible so that you understand it from top to bottom!

My “What is blockchain tutorial” is going to start by explaining what the technology does and how it works, followed by a discussion on its advantages over traditional systems. I am also going to give you some examples of how it can be used (and is being used) in everyday life.

So what are you waiting for, let’s begin by understanding what blockchain technology actually is!

What is Crypto Arbitrage? (Risks & Tips Explained With Animation)

Did you know?

Want to get smarter & wealthier with crypto?

Subscribe - We publish new crypto explainer videos every week!

What is Crypto Arbitrage? (Risks & Tips Explained With Animation)

What is Crypto Arbitrage? (Risks & Tips Explained With Animation) What is Crypto Arbitrage? (Risks & Tips Explained With Animation)

What is Blockchain Technology?

In its simplest form, the blockchain is the technology that allows people to send and receive cryptocurrencies such as Bitcoin. However, it is far more than just a payments system. When Satoshi Nakamoto created the world’s first ever cryptocurrency (Bitcoin), he also created an amazing protocol known as the blockchain.

Latest Deal Active Right Now:

The most interesting part to the blockchain is that no single person or authority has control over it. Instead, transactions are verified and confirmed by the online community, which makes it decentralized! The protocol has lots and lots of benefits such as transparency, speed and security, which I will explain in more detail later on.

The actual idea of blockchain technology is not only linked to financial transactions, as it has the potential to be applied to just about any industry!

As the blockchain is decentralized, everybody has access to the same data (unless it is a private blockchain used by companies). That means that as soon as a transaction is processed and confirmed, it appears on the blockchain for all to see.

This is very similar to a real-world accounting ledger, where the company accountant can view every transaction that has ever occurred, along with account balances. However, as blockchains such as Bitcoin and Ethereum are public, anyone can view the transactional data.

There is so much to talk about when trying to understand the correct blockchain definition, so I thought it would be best to break everything down. The next part of my “What is Blockchain” guide is going to talk about why it is called blockchain!

Blockchain Definition: Why is it Called Blockchain?

Although there are now many different versions of the blockchain definition, they all work in very similar ways. The easiest way to explain what it does is to split the word blockchain into two – block and chain!

Think about a real-world container that carries lots of boxes from destination A to destination B. In the world of cryptocurrency, the container is the “block” and each box that is on the container is an individual transaction.

“Container” = Block

“Boxes” = Transactions

“The container carries lots of boxes” = The Block Carries Lots of Transactions

I know this might sound complex, but stay with me as it is all about to make sense! So, in the example of the blockchain Bitcoin uses, it takes a total of 10 minutes for one block of transactions to be confirmed on the network.

Like in a real-world container, there is only a certain amount of transactions that the block can carry, which is determined by the maximum block size. Every blockchain has its own maximum block size, which is normally the amount of data (megabytes) it can hold.

Bitcoin is able to hold the 1MB worth of data in each block, while others, such as Bitcoin Cash, have a block size limit of 8MB.

The larger the block size limit, the more transactions it can hold. So now you know what a block is, what about the chain?

To make things really easy for you, I am going to stick with the example of a container carrying boxes! Let’s imagine that the container has reached its first destination. That means the block has been confirmed and it is now available on the public ledger for all to see.

However, the container is ready to depart for its next destination. Every new or old box (transactions) that the container (block) carries will also be available to view on the public blockchain. This is the same for every single transaction. As soon as it is confirmed, the transaction data is clear for everybody to see, which is why it is called a “chain” of transactions!

So now that you understand where the blockchain definition comes from, the next part of my “What is blockchain” guide is to explain how transactions are confirmed!

How are Transactions Confirmed on the Blockchain?

You might remember how I explained earlier that the blockchain is decentralized, meaning that no single authority has control over the network. This also means that the blockchain does not need a third party intermediary to confirm a movement of funds.

If that’s the case, how are transactions confirmed? This is where things get really interesting!

The blockchain is a community-based platform, meaning that in most cases, anybody can contribute to the network to help verify transactions. They do so by contributing their computational power, which in return, is able to support the network.

Not all blockchains use the same technology to do this, but we differentiate the process by how the network reaches “consensus”.  Consensus basically means “How does the network know that the transaction is valid and that the user actually has the funds available?”

Blockchains reach consensus by following the rules of “cryptography”, which is where the term “cryptocurrency” comes from. Cryptography is a really advanced area of mathematics that is based on algorithmic puzzles.

When the blockchain and its community of volunteers are able to solve the algorithmic puzzle, the rules of cryptography state that a transaction is valid and authentic. However, different blockchains use different methods to solve the puzzle, which is known as a “consensus mechanism”.

Confused? Don’t be, as my “What is blockchain” guide is now going to give you an example!

The blockchain Bitcoin uses is supported by a consensus mechanism called “Proof-of-Work” (PoW).  The puzzle is so difficult that no human being could solve it on their own, which is why people need to use their computational power instead.

Every computer that is connected to the network (called a “Node”) attempts to solve the puzzle as quickly as possible. Whoever solves the puzzle first, gets a reward – free, new Bitcoin. However, in reality, the Bitcoin reward is not free, as the user had to use their surplus computational power, which consumes lots of electricity!

PoW is just one example of how a blockchain reaches consensus. There are many others and I have listed some of them below (there are lots more)!

  • PoS (Proof of Stake)
  • DPoS (Delegated Proof of Stake)
  • PBFT (Practical Byzantine Fault Tolerance)
  • DAG (Directed Acyclic Graph)

Are you still asking yourself “What is blockchain”? I hope not! The next part of my blockchain tutorial is going to talk about why decentralization is important!

The Importance of Decentralization

As you now know, the blockchain protocol is able to confirm a transaction without a third party and no single authority has control over the network. This is why it is decentralized. But why is this important?

Firstly, decentralization is very secure. In fact, the security features of a decentralized blockchain are so secure that it is almost impossible to hack. Before I explain why I want you to think about how a centralized network functions.

Let’s take a look at an organization like Yahoo. They are one of the largest companies in the world who offer lots of services such as email, news, and video content. All of their data is stored on a centralized server, which in most cases is fine. But what happens if the centralized server fails?

This is exactly what happened in 2016 when a group of hackers managed to gain control of the Yahoo servers, which then allowed them to access more than 3 billion private email accounts.

This isn’t a one-time incident either. Whether its social media, banks, internet service providers or the U.S. election, centralized servers are hacked all the time. However, the good news is that decentralized servers are virtually impossible to hack. Here’s why!

Do you remember how my “What is Blockchain” guide explained that to confirm a transaction, lots and lots of people contribute their computational power? These “Nodes” not only help verify a movement of funds, but they also keep the network secure. This is because more than half of the nodes on the entire network would need to be hacked at the same time for something bad to happen!

Even if this was possible (which it isn’t, really), the hacker would only be able to make changes to the blockchain for 1 block, which in the case of Bitcoin, would be about 10 minutes!

Decentralization isn’t only important for security, but for equality, too. Everyone who engages with the blockchain has the ability to contribute to the system. Furthermore, as each and every transaction is available to view on the public ledger, it makes the network transparent. No corruption, no fraud, and no inequality!

Now that you know why decentralization is important, the next part of my What is Blockchain tutorial is going to look at how anonymous the blockchain is!

How Anonymous is the Blockchain?

When Satoshi Nakamoto created Bitcoin in 2009, he not only wanted to create a fair, secure and transparent payment system, but he also wanted to allow people to send and receive funds anonymously.

Think about how you spend your money in everyday life. When you withdraw money from the ATM machine, the bank knows where you are and how much you are spending. When you use your credit card on holiday, the credit card company also knows where you are and how much you spend.

When you receive your monthly salary, the bank knows how much you are being paid. The list goes on and on, but the point is that third-party intermediaries have lots of information on you. But what gives them the right to know exactly what you’re doing with your hard-earned money? Nothing does! They shouldn’t know.

This is where blockchain technology is different. When you obtain a cryptocurrency, you store it in a digital wallet. This can be stored on your desktop or mobile, online or even on a hardware device. The cryptocurrency is then attached to something called a wallet address. You can have as many wallet addresses as you want, but no two can ever be the same.

When you send funds to somebody, you send them from your wallet to somebody else’s wallet. Here is what a blockchain Bitcoin transaction would look like.

Wallet “1BoatSLRHtKNngkdXEeobR76b53LETtpyT
Sent “2 BTC” to
Wallet “1CfaunqrVpcXmpLheUVWeSP1KPsKDha1Nb

On Friday 18th May 2018 at 15.37.

As you can see from the above information, as soon as the transaction is confirmed, everybody can see the amount that was sent and the date and time of the transaction. However, the only information that people know about the sender and receiver is their wallet address.

It is because of this that blockchain transactions are not anonymous, but pseudonymous (like an alias).

However, this is just like spending cash in the physical world. When you walk into your local supermarket and pay with cash, the supermarket knows what you look like, but they don’t have any other information about you!

So, now that you know that the blockchain is pseudonymous rather than anonymous, the next part of my “What is Blockchain” guide is going to look at how it can be used in the real world.

How Can Blockchain Be Used in the Real World?

In reality, blockchain technology could be used in practically every industry or sector. By replacing centralized servers with that of a decentralized blockchain, individuals, companies and even governments could benefit from all of the advantages that the blockchain offers, such as security, transparency, and speed!

I am afraid I can’t go through every single industry that the blockchain could be used for, so I will list five of my favorites!

Cross-Border Payments

The cross-border payments industry is a multi-trillion dollar business, with banks needing to send international payments on a daily basis. The majority of this is handled by a third party called SWIFT, who are based in Belgium. SWIFT were set up in the early 1970s to make international payments easier, however the system is slow, expensive and inefficient.

This is because banks are not able to transact with each other directly. Instead, they have to use SWIFT and in some cases, additional correspondent banks. However, by using blockchain technology, banks would be able to do business on a peer-to-peer basis.

This means that there is no third-party intermediary sitting in between the two organizations.  Transactions would no longer take days, nor would they cost lots of money! The Ripple blockchain was designed exactly for this purpose and they already have more than 100 different banks testing out their protocol!

Elections

How many times do we hear about election fraud? Whether it is the centralized network of the U.S. election being hacked (allegedly!) or governments who threaten their citizens with violence if they don’t vote for them? Unfortunately, this happens all the time, but blockchain technology could solve the problem!

Firstly, as every single transaction that has ever occurred is available to view on the public ledger, it would be impossible for a political party to change or remove votes. Remember, the blockchain is not only for financial transactions, as it can process anything that is considered data!

The blockchain would also be perfect for elections as transactions are pseudonymous, meaning that nobody would know the real-world identity of the voter. Instead, a citizen’s identity could be linked to a private key that only the individual user has access to. This would ensure that the citizen can only vote once!

Supply Chain

A supply chain is how goods move from their point of origin to their final destination. An example of this is an orange juice drink. The supply chain starts at the location where the orange was grown, it might travel to a factory to be turned into juice, then it might travel to the warehouse, and finally, to the supermarket.

At the moment, it is very difficult to trace each individual stage of the journey, as each part of the supply chain uses its own centralized systems. However, by using blockchain technology, the entire supply chain process could be available for all to see.

This would be a lot more efficient, transparent and secure than using centralized servers, as everything could be put on to the same network. Furthermore, the network would never go down and it is fraudproof!

What is a Crypto Mining Rig? Is it Worth it? (EASILY Explained)

Did you know?

Want to get smarter & wealthier with crypto?

Subscribe - We publish new crypto explainer videos every week!

What is a Crypto Mining Rig? Is it Worth it? (EASILY Explained)

What is a Crypto Mining Rig? Is it Worth it? (EASILY Explained) What is a Crypto Mining Rig? Is it Worth it? (EASILY Explained)

Gambling

The online gambling industry is worth billions of dollars each and every year. Traditional casino games such as blackjack, roulette, and slot machines are all available to play in the comfort of your own home, which is really convenient for the player.

However, as online casinos normally keep their gameplay data behind closed doors on their centralized server, there is never any guarantee that the casino is truly playing fair.

By using blockchain technology, gaming outcomes can be independently verified on the public ledger, meaning that the system and data would be completely transparent. This could also be used for national lotteries, too!

Binance Review
Pros
  • A very well-known crypto exchange platform
  • More than 500 different cryptos available
  • Two-factor authentication
Main Features
  • Over 500 different cryptocurrencies available
  • Strong security
  • Small withdrawal fees
Bybit Review
Pros
  • Very low trading fees
  • Exceptional functionality
  • Mobile trading app
Main Features
  • Very competitive trading fees
  • An intuitive mobile app
  • Up to 100x leverage available
Kraken Review
Pros
  • Secure and reliable
  • Low fees
  • A good amount of fiat currencies accepted
Main Features
  • Reputable exchange
  • Multiple fiat currencies are accepted
  • Relatively low trading fees

Insurance

The insurance industry covers practically everything on Planet Earth. Whether it’s your home, car, pet, health, holiday or phone — if it has value, it can be insured!

The problem is that the industry is dominated by third-party intermediaries, which means that taking out a policy is expensive and when it comes to making a claim, it’s a very slow process. However, the blockchain protocol would allow somebody to get insured without needing a third party.

For example, if somebody wanted to ensure their flight, as soon as the plane actually takes off, the outcome could be settled automatically. Either the plane takes off on time and you lose your insurance payment, or the plane is late and you receive a payout!

This could all be done in a transparent, fast and secure eco-system, such as the blockchain!

What is Blockchain? -  Conclusion

That’s the end of my “What is Blockchain” guide! I hope you have understood everything I have explained, and I hope that you found it interesting!

I know the concept sounds really complex at first, but I am hoping that the real-world examples I have made things simple for you!

So, if you read my blockchain tutorial from start to finish, you should now know what the blockchain is and how it works. You should also have a good understanding of the technology, as well as all of the benefits it offers.

What is your favorite thing about the blockchain? I think it’s amazing how nobody controls it and that instead, control is distributed across the online community!

I have also spoken about five key industries that would benefit from blockchain technology. Do you agree with me, or can you think of some better ones? Whatever your opinion is, let me know in the comments section below! I just hope you aren’t still wondering what is blockchain!

Also, if you have any further questions, please ask us! We’d be glad to help.

Bonus: Test yourself on your new knowledge. See if you can answer the question of what is blockchain in an extremely brief format (less than 100 words). It's tough, but the shorter you can make a brief explanation, the easier it normally is to grasp the core principle of something!

About Article's Experts & Analysts

By Aaron S.

Editor-In-Chief

Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era. W...
Aaron S., Editor-In-Chief
Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.
With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.
Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.
Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.

Latest Crypto Videos & News


TOP3 Most Popular Coupon Codes

Verified

CLAIM $600 REWARD

Exclusive Binance Referral Code
Rating 5.0
Verified

UP TO $30,000 BONUS

Get Bybit Referral Code Reward
Rating 5.0
Verified

CLAIM 10% DISCOUNT

On Ledger Nano S Plus 3-Pack
Rating 5.0

Leave your honest feedback

Leave your genuine opinion & help thousands of people to choose the best crypto exchange. All feedback, either positive or negative, are accepted as long as they’re honest. We do not publish biased feedback or spam. So if you want to share your experience, opinion or give advice - the scene is yours!

FAQ

How to pick the best crypto exchange for yourself?

Picking out the best crypto exchange for yourself, you should always focus on maintaining a balance between the essential features that all top crypto exchanges should have, and those that are important to you, personally. For example, all of the best exchanges should possess top-tier security features, but if you're looking to trade only the main cryptocurrencies, you probably don't really care too much about the variety of coins available on the exchange. It's all a case-by-case scenario!

Which cryptocurrency exchange is best for beginners?

Reading through various best crypto exchange reviews online, you're bound to notice that one of the things that most of these exchanges have in common is that they are very simple to use. While some are more straightforward and beginner-friendly than others, you shouldn't encounter any difficulties with either of the top-rated exchanges. That said, many users believe that KuCoin is one of the simpler exchanges on the current market.

What is the difference between a crypto exchange and a brokerage?

In layman's terms, a cryptocurrency exchange is a place where you meet and exchange cryptocurrencies with another person. The exchange platform (i.e. Binance) acts as a middleman - it connects you (your offer or request) with that other person (the seller or the buyer). With a brokerage, however, there is no “other person” - you come and exchange your crypto coins or fiat money with the platform in question, without the interference of any third party. When considering cryptocurrency exchange rankings, though, both of these types of businesses (exchanges and brokerages) are usually just thrown under the umbrella term - exchange. This is done for the sake of simplicity.

Are all the top cryptocurrency exchanges based in the United States?

No, definitely not! While some of the top cryptocurrency exchanges are, indeed, based in the United States (i.e. KuCoin or Kraken), there are other very well-known industry leaders that are located all over the world. For example, Binance is based in Tokyo, Japan, while Bittrex is located in Liechtenstein. While there are many reasons for why an exchange would prefer to be based in one location over another, most of them boil down to business intricacies, and usually have no effect on the user of the platform.

binance
×
Verified

$600 WELCOME BONUS

Earn Huge Exclusive Binance Learners Rewards
Rating