Blockchain is the new car in town lighting up the Silicon Valley. Although it was unveiled about a decade or so ago in form of Bitcoin and its cryptocurrency, bitcoin, its potential is still largely untapped. It was unimaginable that an intangible asset such as bitcoin, could accumulate such high value and so fast. The coin has already attained immense value in a decade, what about a century? I choose to call it creating wealth from thin air. There are some fundamental principles, which together contribute to the ‘iron clad’ nature of blockchain.
The key principle is its transparent nature. “The chain of transactions done on blockchain are open for everyone to see,” Waruingi (2018). It gives one the ability to access the origin of assets, their present location and destination. This creates a level of security in itself. You cannot divert a transaction from its current path or stop it. There is also improved tracability through the chain. Everyone in the chain can see how much is in the possession of every actor and everyone can “decide whether a transaction is valid or invalid,” Waruingi (2018).
What this means is, record keeping is decentralized. Blockchain does not have a centralized ledger this is because it distributes the centralized ledger across to all actors better known as nodes. In the devices the actors use to participate in blockchain be it via phone or PC, the software application in their device is continuously updating a copy of the ledger. Ledger updates are synchronized for all actors in the network and so every actor has the latest copy at any given time, all the time. When you join the network, you get the latest copy of the ledger as well.
Waruingi (2018) concludes that, “miners are special nodes which can hold the ledger.” Mining is a lucrative business. A miner is a special computer that competes with other miners to validate a transaction and put it on the ledger for a financial reward. The first miner gets the reward.
Mining is a two-step process; first validating the transaction and then finding a special key that allows it to take the present transaction and the previous transaction and lock them together. Validating the transaction is easy because of the open ledger principle. However, finding the special key requires time and computational power. This is because the special key is random and it is more of guessing than targeted searching. The victor gets the opportunity to lock the previous and present transaction thereby completing the task and earning the reward. In the end, it is not all algorithms, it is fun too.
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Waruingi, M. (2018). Ubricoin: Blockchain technology for global health. Ensuring universal access for you and your loved ones. Makuyu, Muranga: Don Bosco Printing School.