*Welcome to the inaugural episode of Bro, teach me crypto!
In this episode, on the outskirts of Hà Giang, I'll explain and introduce blockchain to Pete.*
Below you can find the explanation I devised prior to recording this episode.
Before I begin, it's crucial to understand that blockchain and crypto are not the same thing.
Blockchain is the infrastructure upon which crypto runs.
Blockchain can exist without crypto, yet crypto cannot exist without blockchain.
To use an analogy, blockchain is like the internet, a foundational technology that enables many other use cases.
Crypto is like email or social media, another layer built on top of the internet.
Crypto makes use of blockchain technology.
I’ll be using Bitcoin to explain blockchain in this episode, however, most blockchains run in slightly different ways, so while this won’t be exactly accurate for every blockchain, it’s close enough for now.
Put simply, a block is just a bunch of data.
This can be any form of digital data, such as shipping information, files, documents and even WiFi usage, but in the case of cryptocurrency, this is a group of transactions.
When I say transaction, I’m referring to a scenario where I send £10 to Pete.
Because with a crypto blockchain, we are transferring value, we can call this record of transactions a ledger, just like in traditional accounting.
Now, it’s important to note that blocks have limits, and can only include a certain number of transactions before they become ‘full’.
Therefore, we have to add more blocks to continue recording new transactions.
So what do we do when the block fills up?
We have to ‘add them to the network’; the network is essentially thousands of computers worldwide communicating with each other.
To add blocks to the Bitcoin blockchain, we have to ‘mine’ them.
You may have heard of mining before?
Since Bitcoin is a ‘proof-of-work’ model, we have to prove that we mined them, and this brings me to something called a hash.
A hashing function is essentially a program that you input something, for example the name Pete, and it’ll output something radically different.
Bitcoin uses the SHA-256 hashing function, which means that each output is a string of 256 zeros and ones.
The input could be just a name, or an entire Harry Potter book, and the output will still be 256 digits.
Computers can then convert these zeros and ones to numbers and letters to create the hash.