Blockchain Technology: Explained by a Musician | LoTs #2

Disclaimer:

Hey ya’ll it’s ya boi TVK here. Look, I’m a musician just like you. I’m watching the world change right before our eyes, and I’m simply an observer trying to make sense of it all. Please don’t take anything I write here as investment advice. Be sure to seek the consult of a licensed professional before making any investment decisions!

Cool? Cool. Now go buy some f*cking Bitcoin already (JOKE)

“Blockchain? What’s dat?”

Now, before I dive into this, I just want you to understand something: Blockchain technology is less than 20 years old. The very concept of a Peer-to-Peer electronic cash system was published by the enigmatic Satoshi Nakamoto in October 2008. Their landmark whitepaper outlined how the Bitcoin network works and it explicitly explains the underlying protocol that would facilitate this network. This open-source, “blockchain” technology inspired a generation of decentralized networks, all of whom have built upon and evolved this technology.

Okay, nerd. Why does this matter? What’s a blockchain? Isn’t that Bitcoin thang a scam?

It’s not a scam, but it is super nerdy and takes some time to grasp. The most difficult part of understanding this whole new world is alllllll of the vocab, so let’s clear up a few terms.

Blockchain

A blockchain is a ledger. It’s as simple as that.

Ledger

Honestly, when I was first learning about this, I didn’t even know what a ledger was LOL. A ledger is a record of transactions, and these transactions can literally be ANYTHING. However, for the sake of an easy explanation, let’s talk about how a ledger can be used to track transactions of money (this was Satoshi’s first use-case, after all.) Let’s say Samantha gives her younger sister, Layla $12 for lunch. Samantha, wanting to keep track of how much money she’s lent out, writes this transaction down on a sheet of paper and puts it on her desk. This sheet of paper is the ledger! Now, let’s say that Layla pays Samantha back. Samantha then records this transaction to the same ledger, confirming that the debt has been repaid. In this example, Samantha created a ledger to track the flow of money between herself and her sister.

Okay, if a blockchain is just like a sheet of paper, what’s the big deal??? Well, a blockchain is an immutable list of transactions that anyone can view, query, and verify. A blockchain keeps a full record of every transaction that ever took place on the network. Every. Single. One.

Things get a little tricky from here. Stay with me

Nodes

In the case of the Bitcoin network, the blockchain network is maintained by a series of powerful computers (AKA nodes) competing to solve a bunch of insane and ever-increasingly complex math problems. When transactions are made on the blockchain, these transactions are collected and recorded in batches called blocks. The node that solves the math problem first constructs the block and is rewarded with Bitcoin (BTC). From there, all the other nodes in the network update their ledgers accordingly and get back to work trying to solve the next math problem.

Every node that maintains the blockchain keeps an identical copy of the blockchain in their computer. In order for the blockchain to maintain its integrity, every node’s ledger must be identical, down to every last transaction. Consensus must be reached among the nodes. This necessary consensus secures the network and protects it from bad actors. If a bad actor tries to manipulate the ledger and game the system, they would have to manipulate the records of thousands and thousands of nodes. Not only are these nodes spread across the globe, but one would have to coordinate and execute the change simultaneously. It would be like trying to rob thousands of banks at the very same time. Difícil AF

TDLR; Nodes run the network. They all talk to each other and make the network nearly impossible to hack.

Cryptocurrency

Cryptocurrency is digital money. BOOM. Das it.

Just kidding—it’s a little more complex than that. Cryptocurrency is digital money, secured by cryptography, that is transacted and recorded on blockchains. Although blockchains are indeed trackable, cryptography obscures the identity of each party from outside onlookers. However, this doesn’t make a user of cryptocurrency completely anonymous. To combat nefarious actors, many crypto institutions require KYC (know your customer) protocols to use their platforms. In exchange for submitting a copy of a government-issued ID, one is granted access to the platforms. This information can be used to identify guilty parties in the event that wrong-doing is committed.

Cryptocurrency is money. Therefore it is susceptible to economic pressures of supply and demand. Every blockchain (there are TONS of them) has a specific cryptocurrency that is used to pay for transaction fees. Beyond fees, demand relies on desirable use-cases for that currency (DeFi, NFTs, etc.). Be sure to do your research THOROUGHLY if you ever consider investing in any project. What does that cryptocurrency actually DO? What can it be used for?

Because this space is still nascent, it is rife with Ponzi schemes and scams that prey upon the mis/uninformed. Do not let it be you <3

Decentralization

This is the last piece of the puzzle when it comes to the basics of blockchains. In the traditional financial system, the bank maintains the ledger for how money flows in our economy. You can’t call a bank to ask to see their ledger. In this case, a single entity maintains and controls the ledger. In this system, one is forced to trust the centralized system. Satoshi Nakamoto dreamed of a world where one wouldn’t have to trust that the bank was acting in its integrity. In fact, the very idea of a decentralized monetary system blossomed in the wake of the 2008 financial meltdown.

In a decentralized system, no single entity owns or maintains the network. Instead, the responsibility and ownership are divided among a larger number of independent parties. The larger the number of independent validators, the more decentralized a protocol is. The more decentralized the protocol is, the harder it becomes for a single entity to highjack the system.

Smart Contracts

This blockchain innovation is what makes me feverishly bullish on the future of this nascent technology. Smart contracts are agreements written in code and recorded on a blockchain. When the specific conditions of a smart contract are met, the contract is fully executed by the code. Transactions executed by smart contracts are fully trackable, visible, and irreversible. Think about everything you need to do using a contract….buying a house, getting a loan, borrowing an instrument from your local luthier—the possibilities are staggering. Ultimately, smart contracts eliminate the input from intermediate, central authorities.

Whew. Anyone hurt?



I imagine that this is already a lot to chew on, especially if this is your first time learning about blockchain. Trust me, it takes a bit of time, meditation, and research to grasp it. Take the time to read more explanations and obtain more examples. I will list some of my favorite resources below to assist you in your education!

With a bit of reading, I know you’ll be able to wrap your head around it, I promise. There are many more concepts I didn’t cover like consensus models of blockchains (proof of work, proof of stake, proof of authority, proof of history, etc.)!

If you’d like me to write another explainer blog post, please lemme know!

Take care,

TVK