How Does Bitcoin Work?

How Blockchain works.

First, let's see Blockchain as a database or a Library;

 If someone has borrowed a book that you want to borrow, you can request the library to notify you when that book is returned, but the library won't tell you the details of the person that borrowed that book

The person that has that book maybe in your hostel.

Closer than the library for the both of you, but you can't go to their house and ask them if you can borrow it from them. The library maintain the central database of all the information of books borrowed and doesn't share it with the students. Now, imagine a shared library where you contribute your books and allow people to borrow them from you.  You probably have lots of books that other people would want to borrow from you, and there are likely many other people that have books you would want to borrow and read

In this example of a shared library, anybody can join, and when they borrow books, they can also lend the books to other people without bringing it back to the library

Sometimes, library supervisor can even do business with some persons too

 Record can also be tampered too

 In this situation where the benefits of Blockchain Technology can really be seen over traditional database

The Blockchain can provide a decentralized distributed database of all the records of the books in the library

 With decentralized database, everyone in the library get access to the records. They would see all the books in the library, who the original owners were, who has borrowed each book, they could see if they went on to lend that book to someone else

Everytime a book borrowed from the shared library, all the database records of books that everyone has access to or updated.  There is No Central Database  or institution required to operate this everybody maintain the database

 Why is it called Blockchain?

 In the library example, every time a book is borrowed it creates a transaction. There are lots of transaction occurring at the same time, so these transactions are then grouped together to create a new block

This new block is added on top of the previous blocks by referring to the block before it, link them together For example, block 1 links to block 2, block 2 links to block 3 and it continues

 By linking these blocks together, it creates a chain of blocks, hence the name Blockchain

Blockchain technology is not a company, nor is it an app, but rather an entirely, new way of documenting data on the internet.

The technology can be used to develop blockchain applications, such as social networks, messengers, games, exchanges, storage platforms, voting systems, prediction markets, online shops, and much more.

How does the Blockchain Technology work?

Blockchain technology is probably the best invention since the internet itself. It allows the exchange of items without the need for trust or central authority.

Imagine you, and I bet #10,000 on tomorrow’s weather condition in Port Harcourt. I bet it will be sunny, and you bet that it will rain. Traditionally we have three options to manage this transaction:

1. We can trust each other: Rainy or sunny, the loser will give #10,000 to the winner. If we are friends, this could be the right way of managing it. However, whether friends or strangers, one can easily not pay the other.

2. We can turn the bet into a contract: With a contract in place, both parties will be more prone to pay. However, should either of the two decide not to pay, the winner will have to take his opponent to court. This will incur legal expenses, and the court case might take a long time.

Especially for a small amount as #10,000, going to court will be a waste of money. Hence, this doesn’t seem like an excellent way to manage the transaction.

3. We can involve a neutral third party: Both of us can give #10,000 each to a third party, who will give the total amount to the winner. But the third party could also run away with all our money. So we end up with one of the first two options: trust or contract.

Neither trust nor contract is the right solution. We can’t trust strangers, and enforcing a contract requires time and money.

This is where the Blockchain technology comes in. The blockchain technology is impressive because it offers us a third option, which is secure, quick, and cheap.

Blockchain allows us to write a few lines of code, a program running on the blockchain, to which both of us send #10,000. This program will keep the #10,000 safe and check tomorrow’s weather automatically on several data sources.

Sunny or rainy, it will automatically transfer the whole amount to the winner.

Each party can check the contract logic, and once it’s running on the blockchain, it can’t be changed or stopped. This may be too much effort for a #10,000 bet, but imagine selling a house or a company.

This piece explains how the blockchain works without discussing the technical details in depth, but by digging just enough to give you a general idea of the underlying logic and mechanisms.

This technology can be used in virtually all areas of life, including political elections.