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Basics of Blockchain Technology

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While we could spend an entire book on blockchain and the technology behind it alone, it is important to
understand the fundamentals if you’re planning to invest in Bitcoin, or any other cryptocurrency.
Blockchain is a decentralized ledger, meaning it is a record that is publicly accessible and can be verified by
anyone. This is important for any non-tangible good as the unlike tangible goods like socks or candy, we
need a record of a transaction happening in case something goes wrong. For example, we need proof that
Steve paid John for the pair of socks that John sold him. The blockchain will have a record of a transaction
from Steve’s account to John’s account, and no one else’s.
Previously, we would have the use a third party, like a bank, to verify the transaction did indeed take place.
The bank would then take their % of the total transaction. As the bank information is not publicly
accessible, we would also have to trust that the bank did their job. By using blockchain technology, we have
a 100% infallible record of the transaction taking place, and anyone can see this. There’s also no need to
pay a large additional fee to a middleman. The only fee involved is the cost of running the blockchain itself.
If we only use blockchain for financial purposes, this is extremely useful in countries that do not have a
trustworthy banking sector. Each transaction is recorded as a block, with a date and timestamp. These
blocks cannot be altered without everyone seeing. The problem this solves is known as the “doublespending
problem”, where digital assets (like cryptocurrency) have the potential to be spent more than once.
What the blockchain allows us to do is see that Steve has already used his money to pay John, so he can’t
then use that same money to try and pay Sally. The blockchain creates trust among all parties, and trust is
paramount when dealing with monetary transactions.
Blockchain’s uses are not strictly financial. We can also use the technology to store other information that
we would need in a publicly available, transparent form. This ranges from anything like voting records in an
election, to a self-executing contract between two parties that fulfills when both parties have completed
their obligations. Blockchain eliminates the need for a middleman, or independent auditor in these situation,
as the technology itself acts both as an auditor, and as an independent. In theory, the technology has the
power to replace accountants, lawyers and much of the financial services industry. Before we get ahead of
ourselves though, much of the non-financial uses of blockchain technology are still strictly, in theory.

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