1.2 Understanding Blockchain - Video Tutorials & Practice Problems

So now we're gonna talk about blockchain and I'm gonna begin with a very simple approach to understanding blockchain. My objective is to make this as simple and as clear as possible, because there's a lot of people that assume that blockchain is extremely complicated but when you narrow it down it's actually quite a simple process. Let me explain this to you. Let's say you have two parties and these two parties want to transfer an asset of value. In order to do that, they both need to agree on the terms. They also need to agree that once that transfer is completed, that it's final. So instead of recording that transfer on two separate ledgers that is party A has a copy of a ledger where they record the transaction and party B has a ledger where they record the transaction which could be prone to errors. I mean party A could record it one way and party B may actually record that transfer differently or there, as we can say there may be discrepancies in how they both view this transaction in fact they might say that the transaction happened at a specific time but party B disagrees and says it's a different time so you really have a discrepancy on how the transaction actually took place. Now you also run the risk of tampering because since party A controls their ledger and party B controls their ledger you have two versions of the truth. I mean which one is accurate? So if party B wants to modify the transaction and change it, they could tamper with that information and you run the risk that one of the two ledgers could be lost or perhaps deleted, there may be a system failure. Now all of these are risks to actually keeping the transaction recorded on separate ledgers. Now you have to understand that that is typically how things get done nowadays, for example party A may actually want to do a transfer and their bank keeps a copy of the transfer as they transfer it to party B's bank, you see the bank that party B has is a different bank and the bank that party B has, has a different version of that transaction. That's why when you send a cheque from one bank to another bank well you have to wait until that check clears, why? because there's two versions of the truth. What Bank A has and he has to wait until that check actually clears because bank B agrees. You see there's two versions of the truth, all of this is what happens when you have separate ledgers. Well what if instead you had one single ledger and you recorded that information on that one single ledger and in that ledger it was shared that is, not only did party A and party B have a copy of that same exact ledger but you created many other copies of that same ledger so you don't have a single point of failure, you simply have one ledger and there's multiple copies of that same ledger. Now the information once it's recorded on that ledger is permanent and furthermore it is immutable, that means that you cannot change it. If you put all those elements together that in a nutshell is the concept behind a blockchain. Let's look now at a definition of a blockchain. A blockchain is a constantly growing ledger, that keeps a permanent record of all the transactions that have taken place in a secure, chronological and immutable way. Now that's the definition which I will now break down to you in individual elements because my goal for you is to understand the concept behind the blockchain because it really isn't that complicated. Let's break that definition down. In a nutshell a blockchain is a ledger, that's all it really is. It's a ledger, it's actually a file that keeps a record of all the transactions that have taken place. Now that ledger is constantly growing. As a matter of fact what you see here is a diagram showing the size of the Bitcoin blockchain, which at this moment is over 200 gigabytes in size, you have every single record of every single transaction that has ever taken place on Bitcoin recorded on that Bitcoin blockchain. Now there is a permanent record of every single transaction. What you see here is actually a screenshot of what's known as a block explorer and we will talk more about block explorers in this course but a block explorer lets you see what's going on and what's recorded on a blockchain. This is actually a capture of the first transaction ever that took place on Bitcoin and actually that transaction has a hidden message inside. That message says Chancellor on brink of second bailout for banks and that transaction actually took place on January 3, 2009. That was the first transaction ever on Bitcoin and that transaction is recorded permanently on the Bitcoin blockchain. Now the information that's recorded in the blockchain is secure it actually uses very advanced cryptography and we'll talk about this further in the course but furthermore there are thousands of copies of that same blockchain around the world distributed on many different computers. As a result you don't have a single point of failure, you actually have many multiple copies of the same exact information all around the world. The information recorded on that blockchain is recorded in a chronological fashion, that is every single transaction that is recorded, it's recorded chronologically and as you build blocks the blocks are built in a manner that's chronological. This is very important as you will see as we go on with the course. Finally that information is recorded in a manner that's immutable that is, you're not able to make any modifications to that information once it's recorded on there. As a matter of fact what you're seeing here is a different transaction from a block explorer, which has a hidden message as well. I put that hidden message in there and I did it in block 518, and I recorded that on April 15, and that message says the internet broke blockchain will fix it and no one will be able to change that message ever since it's recorded in an immutable fashion.