You were very brave clicking that link! Don't worry, I will be gentle. Look! I have rewarded you already with a cute puppy (who can resist a puppy!). Ok, ok, I did spend an hour looking at puppy pics, but it was in the name of research, dammit!
Let's just rip the band-aid off and dive straight in.
What is a blockchain?
A block chain is the method in which cryptos achieve decentralisation. Records (transactions and other details) get bundled together, called blocks. Each block has a code included in it that references the previous block, which keeps all the blocks in a chain. The data in any given block cannot be altered without the alteration of all blocks that occurred after the block, essentially making it impossible to maliciously alter the data, as making such an alteration would require the cooperation of the majority of the network. It is this arrangement that makes the network secure.
What is consensus?
Consensus is a process where multiple nodes (fancy word for 'someone's computer') agree that the data in a block, and in the chain, is correct. This is an important part of the security of the network as this is a double check that the data on the blockchain is the true data.
There are a variety of methods a blockchain can adopt including:
* Proof of Work (PoW)
* Proof of Stake (PoS)
* Delegated Proof of Stake (dPoS)
* Leased Proof of Stake (LPoS);
* Proof of Importance (PoI)
* Delegated Byzantine Fault Tolerance (dBFT)
* So many more...
I won't go into the details of each type (we will be here all day!), but I will touch on the two most common, Proof of Work and Proof of Stake.
Proof of Work (aka Mining)
This is first type and the most common method.
In order to complete a block (chunk of data) the node (someones computer) has to figure out a very complex math problem. The complexity ensures that the computer has to use a lot of electricity. The electricity use (and ultimately the paying of the electricity) is the cost of being a node. When the node figures out the math problem, the node is rewarded with some cyrptocurrency. This is called a block reward.
If a node (called a miner in this type of consensus) gets a different answer from other miners, then their answer is rejected. A rejection is a waste of electricity, so there is an incentive for the answer to be in line with other miners. In this type of consensus, in order to cheat the system you would need to control 51% of the computing power on the network, which is so difficult it is basically impossible.
In this system the more computing power you have, the more likely you are the solve the math problem first, and so get the block reward. Because of this, many nodes join their resources together (called a mining pool) so that individual nodes get a more consistent reward.
When too many computers join the network, and the math problems get solved quicker and quicker. This is a problem because this can interfere with the stability and security of the network. To combat this, the difficulty of the problem is increased so that the number of blocks created on the network remains consistent. This difficulty is called Block Difficulty.
Proof of Stake (PoS)
In this method, a node is not required to solve any math problems. Instead one node is chosen to process the transactions and other nodes are chosen to verify the transactions. In order to be chosen the node is required to provide a stake of currency. This stake is locked up in a virtual safe, and if anomalies are detected from the node, the stake is forfeited. The reward for this work is a percentage of stake, so the more currency you stake, the more likely you are to be chosen to process a block. This means you get a bigger reward, but you also risk more currency if you try to cheat.
Now, obviously, the reality of blockchains and concensus is way more complicated than I have explained, so if you want some more technical detail, wikipedia is a great resource. Wikipedia on Blockchains or WikiPedia on CryptoCurrency.
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Individually, cryptos solve a variety of real world problems, that often can appear to replicate what already exists, such as currencies, platforms, data storage, games, and graphic manipulation. But its not the individual applications that are important with cryptos. What is important now is HOW these problems are solved with cryptos, which makes all the difference.
Collectively, cryptos have some features in common (mostly). Together, they share these features: Security; Transparency; Immutability; Accessibility; Speed; Value
Currently, the global community relies pretty heavily on central management. In fact, we have been pushed very heavily towards it, and we have used technology to achieve it. If you have a home wi-fi network, a business network, or you store anything in "the cloud", then you are already familiar with how centralisation can be of enormous benefit to us all. This centralisation has also been applied to currencies, bonds, securities and title deeds. However, this centralisation does not prevent a central bank from changing the money supply, the government losing records (or purposely changing them) or prevent records from damage through flood, fire or digital loss, even if measures have been taken to prevent these exact things. Essentially, centralisation gives a single person, body, or corporate total control over the information, and thus over its use.
Cryptos, however, are decentralised. This does not mean 'no longer controlled' instead it means 'controlled by all and by none'. This is true because a record does not exist in one place, it exists in hundreds or even thousands of locations. This is of benefit if the network faces a malicious attack. The attack must simultaneously compromise (in the case of Bitcoin) 51% of the network in order to be successful. The sheer computing power, and resources that would be required to achieve this would well outweigh the benefit of being successful, and would be well outside the resources of any potential attacker.
Most (but not all) cryptos are open source. This means that anyone can look at the source code of the crypto, and if you understood programming language, you could confirm the the code is executing in ways that are expected. This makes it possible to trust the system of the crypto (rather than having to trust a person) as the crypto will always act in an expected way. In practice, other programmers check source codes and report back their findings. This is like a review system for cryptos, the bad ones are quickly revealed, so there is strong incentive for developers to good, non-malicious code.
In addition, every transaction ever created can be viewed in an explorer, making the execution of the crypto transparent also.
This is just a fancy word for unchanging and most importantly unchangeable. Security and Transparency make this possible. It is practically impossible to change the transaction history, and transactions are fully verifiable, so trusting the transaction took place as expected is easy. Essentially, baring a complete collapse of the crypto network, the transactions are fully immutable.
As long as you have internet access, you have access to the crypto network. This makes cryptos globally accessible and equally accessible to all nations, provided the internet connection is available.
Transfers between banks, across long distances or between countries can vary in time from a few hours to a few days. Cryptos transaction times range from immediate to one hour (depending on the crypto used). This is regardless of the physical distance the transaction must travel.
As there is no need to change currencies when transactions move from country to country, there is also no loss of value. One coin is worth one coin regardless of its physical location, or the country it resides in.
With these collective features there is no need to trust in a potentially corrupt or inefficient third party. They allow us to conduct “trustless” deals anywhere in the world, and any associated fees that would have paid for the security of a transaction would no longer be necessary. This then opens up new markets which are dealing with corruption, unstable currencies or poor business practices. The crypto can stand outside these issues, providing stability in the market.
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