Beginners Guide to Cryptocurrency Part 2

What is a Blockchain?

Fun Fact: A Blockchain is a type of technology that is used to power cryptocurrencies such as Bitcoin. A blockchain can function without the use of a cryptocurrency, but a cryptocurrency can’t function without a blockchain.

Definition: A blockchain is a digital public ledger that records transactions and interactions. The maintenance of the blockchain is performed by a network of communicating nodes running co-operative software.

E.g. In the previous example, when Ben purchased that Jetski off Heather using Bitcoin. His transaction was sent to the Bitcoin blockchain where hundreds of nodes checked their records and confirmed his coins existed. Together, these nodes altered the ledger to reflect the transfer by reducing the number of coins in Ben’s Bitcoin address and increasing the number in Heather’s. The new calculations added to Heather and Ben’s address history, confirmed the funds remaining and held the information securely on multiple nodes within the blockchain. Heather could leave her Bitcoin there until she wanted to send it somewhere else. To further interact with her Bitcoin she can use her mobile phone wallet, which sends commands to the blockchain and takes information from it.

There are many different Blockchains out there but we like to call them “The Blockchain” because it makes the technology sound more important.

In reality, one Blockchain can be a set of thousands of nodes that receives commands and records transactions, therefore tracking the flow of currency.

Another Blockchain can be a set of nodes that receives commands, records information, processes interactions and executes more commands automatically based on circumstantial triggers.

The difference between one blockchain to another can be astounding but what makes them all a blockchain is the fact that they have a network of nodes simultaneously storing and processing identical information using cryptography.

“The Blockchain” can be used for far more than transferring currency. Currency is just a piece of data, a simple number. Any any type of information can be stored, altered and transferred by a Blockchain.

This leads us to the more advanced actions or commands that can be pre-programmed and carried out automatically. These are called smart contracts.

What is a Smart Contract?

Fun Fact: A smart contract is an automated computer command that is triggered by pre-programmed circumstances and processed by a blockchain.

Some cryptocurrencies are capable of using smart contracts.

Bitcoin can’t.

Definition: A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of an action. Smart contracts allow the performance of credible interactions without third parties. These interactions are trackable and irreversible.

E.g. If Ben purchased the Jetski off Heather based on a referral from Vicki and Vicki wanted to be rewarded for her referral. It’s possible to program a smart contract to automatically reward referrals by giving Vicky a percentage of Heather’s sale as commission. Ethereum is a type of cryptocurrency that can utilise smart contracts. In this example, the smart contract would be automatically triggered by the transaction. Following the pre-programmed command, the smart contract will reduce the amount transacted onto Heather’s address, and add that amount to Vicki’s address instead.

Smart contracts are like apps or programs that are distributed across computer networks.

Normal computer programs receive commands, execute actions and produce results. A smart contract will use multiple nodes on the blockchain to verify the command, before executing the pre-programmed action, and storing the result securely on those nodes.

Smart contracts are very flexible because data can represent many things such as people, products, assets, and attributes for all those things.

The programming of a smart contract is only limited by the language of the code and what the data is used to represent.

There are many cryptocurrencies that are trying to use smart contracts to achieve things you could only imagine in a sci-fi movie. There are other developers focused on creating applications that are more practical to use in today’s society.

It’s up to you to decide what interests you, and what will interest other speculators.

How does it all tie in together?

Okay, so say for example it’s 2022 and you want to wash your Tesla.

You drive up to the auto-wash and swipe your watch at the pay gate and it debits 0.0000000012 ETH (Ethereum — a type of cryptocurrency).

The payment system will send this data to the Ethereum blockchain, and hundreds of nodes will verify that the funds are there and the transaction is legitimate.

The confirmation of your funds may then trigger a smart contract which adds a piece of data that represents the holding of your money in escrow, until the service has been successfully provided.

Upon completion of the wash cycle your Tesla could use inbuilt sensors to rate the cleanliness of your vehicle.

If your vehicle wasn’t considered clean enough for expected service standards Your Tesla could send this information to the Ethereum blockchain and the smart contract would be broken, automatically issuing a refund of the amount in escrow.

Summary

A Bitcoin is a type of cryptocurrency that stores data on a blockchain — which is a public ledger, hosted by a network of nodes.

If that paragraph is starting to make sense to you then congratulations, you now understand enough about cryptocurrencies to keep learning more.

Baby steps please.

We are talking about a technology that will most likely change the fabric of society.
It’s not just an investment vehicle that can be used to pump out lambo’s.

If you run around buying up every coin that has already skyrocketed you will get caught holding bags that are leaking money.

Even worse, you will support projects that are all hype and no substance which will never achieve anything tangible. Too many speculators are rewarding lies and laziness and encouraging more of the same.

This dilutes investment into projects that have the potential to advance the blockchain to a place where it improves society.

Businesses whose value is solely built upon investor contributions, as opposed to revenue and profits, are a house of cards waiting to collapse. This is no different for cryptocurrencies.

This is why experienced stock market cronies are calling Bitcoin a bubble. This is why we need to support cryptocurrencies that offer realistic expectations of gaining actual users.

You are the market, you have the power to decide what wins and what loses in the short term. In the long term, society will decide.

As Gary Vaynerchuk says “how you make your money, matters more than how much money you make”

Support adoption, support usefulness, support practicality.

This is what will advance crypto and give you the most substantial returns.