What is Blockchain and Cryptocurrency?steemCreated with Sketch.

in #blockchain6 years ago

Blockchain is a system of recording or database that is widespread in the network, or also known as distributed ledger. But what does that mean?

Comparison of Traditional Systems With Blockchain
I am sure you can find many definitions of blockchain on the internet, so I will try to explain the meaning in my own way. Let's compare the traditional system with the blockchain system.

  1. Traditional System: Trust With Third Parties
    Suppose you buy a cup of coffee at your favorite café in the Mall. When you pay, you swipe your credit card on the café card machine. Here is a transfer of money from your account to the café account. But you know where this transfer really happened? Why can your café believe that your money has been transferred to their account? This is because there is a third party that is trusted by you and your café. In this case, the third party is your bank, or the card network you use (Visa, MasterCard, or Amreican Express). Your café trusts the third party.
    IMG_20180611_012854.jpg

But what will happen if your bank system, or your credit card network is experiencing a technical problem or hack?

  1. Blockchain System
    Blockchain is a system that does not use such third parties. In essence, records of transactions that have occurred, stored by many computers scattered in the network itself. So it would be harder to hack a system of hundreds or thousands of computers, and chances are small for all of those computers to be interrupted at the same time.

So if you for example pay for your coffee using Bitcoin (one of cryptocurrency), Bitcoin for the payment of the coffee is transferred from your Bitcoin address to your Bitcoin cafe address in peer-to-peer. And these transactions will be recorded on all the computers scattered in the Bitcoin network.
IMG_20180611_013124.jpg

Simple Analogy To Explain How Blockchain Works

  1. Non-Blockchain Example: A RT Trusting a Third Party
    In a RT with 15 houses, Mr. RT trusted the recording of financial transactions to Pak Budi. Pak Budi is in charge of recording anyone who has not paid the monthly dues of the RT, and also which homes are owed to another house if they hold a joint meal. Here, Mr. Budi is a party entrusted as an accountant. The 15 houses in the RT, trust Mr. Budi to make accurate records. Surely there are some risks here:

What if Mr. Budi's financial records were stolen by irresponsible parties?
What if Mr. Budi tried to steal RT cash money?
What if the friends of Mr. Budi tried to manipulate Mr. Budi to remove their debts from Mr. Budi's records?
IMG_20180611_013321.jpg

  1. If This RT Using Blockchain System
    If we want to change the RT above to use the blockchain system, then Mr. RT starts by asking the residents: who are those who are interested in becoming an RT accountant. For example, there are 9 interested residents, so these 9 people will record all the transactions that occurred in the RT, and their records will all be identical. In this way, it would be more difficult to steal 9 notebooks, or to manipulate 9 different people.
    IMG_20180611_013501.jpg

What are the benefits to be an accountant in this RT?

Cryptocurrency
Call it in this RT, all residents love chocolate, so we will use chocolate as currency / money used here. These 9 residents will work as accountants in the RT, and they will compete for chocolate rewards from their accountant's work. In the world of blockchain and cryptocurrency, these 9 occupants are also called miners because they work to mine chocolate.

If there is a complex transaction calculation, for example the 15 houses in RT all hold lunches at the restaurant, and everyone orders different food so the payouts are different, the 9th accountant will compete to calculate the fastest transaction. Anyone who completes the earliest calculations, and can be confirmed by 8 other accountants that his calculations are correct, then he will be given a chocolate gift. This is why miners ideally have a strong and fast computer system.

However, apart from these 9 accountants, other residents in the RT can also trade the chocolate itself, because this chocolate has value (there is supply and demand). And if this RT has a new population, the demand for chocolate will increase, so the price of chocolate will rise due to higher demand while the supply amount (or supply of chocolate) is fixed.

In the world of cryptocurrency, the above chocolate is a parable of Bitcoin, Ether (the currency used by blockchain Ethereum), or other cryptocurrency.

Blockchain Properties Important To Understand By Cryptocurrency Investors
If you have read and understand the general concept of blockchain above, here is a further explanation of the blockchain from the investor side of cryptocurrency.

  1. Open-source and Transparent
    It is important to understand that the blockchain code is transparent. If you are a developer who can read blockchain code, you can verify your own code what is written, for example on Bitcoin:

How much Bitcoin supply at startup (Genesis block)
What is the rate of Bitcoin inflation (to understand demand and supply)
If you compare it to a common currency of a country (eg US Dollar), which is usually controlled by the central bank (Federal Reserve in the United States), ordinary people like us will never know how much new money will be printed in the future, next year; Or what is the bank interest rate next year. With cryptocurrency, all of these can be verified in the written code.

  1. Decentralized / Not Centralized
    Cryptocurrency is a scattered system, in which no single person or company controls it. The blockchain code is not located on a central server operated by a company, but is spread across thousands of computers in the blockchain network. You can also have your own node, where your computer / machine contains blocks and records of the blockchain transaction.
    Since the blockchain is transparent, we can know exactly how many cryptocurrency supplies there are and how many will be printed in the future.

Why is Supply Important?

Everything in the world that can be sold and bought has a price. And the price of everything is always dependent on supply and demand (demand and supply).

Imagine if everyone in the world has an apple tree that can produce an unlimited number of apples, of the same quality. So the price of apples will be very cheap and maybe even close to 0, because it is useless to buy something that you can produce yourself whenever you want.

Another analogy: Imagine if the Ferrari car company only produces 10 Ferrari special editions in the world. You decide to buy one of those cars at a high price, because it is very exclusive. However, in the next 5 years, it turns out Ferrari decided to produce the car as much as 10 thousand units. How do you feel? And what do you think will happen with the price of the special edition car?

The concept is the same as stocks. To understand the price or value of a company, we need to understand how the market capitalization of the company, which can be obtained from the number of shares multiplied by the stock price. Future income and profit margin are also important, but this is a separate topic.

Number of Supply and Inflation Rate of Bitcoin

Let's look at Bitcoin's supply and inflation rate as an example. The graph below is based on Bitcoin code, and can illustrate exactly how much Bitcoin supply will be available in the future.

IMG_20180611_013629.jpg

  1. Immutable (Can not be Canceled)
    Anything that has happened and confirmed in blockchain can not be undone. So if you have made a mistake in transferring your funds to the wrong address, your funds are lost - unless the owner of the recipient account is kind enough to refund your funds. But keep in mind, it's almost impossible to find out who owns a cryptocurrency address.

Of course there are exception cases in blockchain where something can be canceled. An example occurs in Ethereum. At that time, a (or a group of) hackers stole a very large Ether fund from the DAO project (15% of all circulating Ether). Ethereum's inventors and developers did not let this happen and canceled the transaction with a hard fork that produced a new version of Ethereum. But the old version of Ethereum is still maintained by several miner parties. This old version is known as Ethereum Classic.

  1. Almost Unlikely To Hack
    A good project blockchain will certainly be supported by many miners / miners who helped to secure the blockchain network with the power of their machine / computer. Cryptocurrency mining is a very big business in itself. Miners are rewarded with the cryptocurrency they mine.

mathematics. Anyone who successfully solves the calculation accurately and creates a new block for the blockchain will be rewarded. Therefore these miners dare to invest heavily to buy powerful computer devices and also pay expensive electricity costs for their activities.

A note: The above mining system is for a proof-of-work blockchain system, such as Bitcoin. Some types of blockchain (such as Ethereum in the future), use a proof-of-stake system - or virtual mining / virtual mining. This is a separate topic.

To be able to hack a blockchain, you have to control more than half (> 50%) of the computer power that secures the blockchain network (known as 51% attack).

You may have heard that a blockchain was hacked before. These hacks generally occur on an exchange (such as Mt.Gox), and smart contracts that have security flaws (such as The DAO); and not on the blockchain itself.

To illustrate how difficult and expensive it is to control the 51% strength on a blockchain network, below is an example of mining activities by companies and individuals:

Sort:  

Go here https://steemit.com/@a-a-a to get your post resteemed to over 72,000 followers.

You Got Upvote From @nitro.speeder

From Helping Us Upvote This Comment

For Daily Upvote Join Our Discord Channel
Invite Link:-https://discord.gg/DkmF7wn

Coin Marketplace

STEEM 0.35
TRX 0.12
JST 0.040
BTC 70810.22
ETH 3571.29
USDT 1.00
SBD 4.73