Blockchain basics explained
We’ve all heard of the famous cryptocurrencies Bitcoin, Ethereum, Litecoin, and many more surfacing over the past decade. However, have you ever wondered what happens on the backend of cryptocurrency transactions? The backbone of this kind of transaction is blockchain. This unique system allows people to have copies of their and others' transactions while displaying many other benefits that may otherwise not be available with centralized transaction systems. We at Cybernews Academy want to guide you through a brief and basic explanation of blockchain and how it works.
Before we dive into the basics of blockchain, we need to introduce some vocabulary that will be useful.
- Ledger- a digital log that records transactions.
- Block- all information is stored inside a block, like a lock box for blockchain data.
- Decentralization- a state where no person or thing has full control over a system or something with no central authority
- Open Ledger- a history of digital events shared among participants within a network.
- Network- nodes that work together to ensure the stability of the system.
- Nodes -computers or stakeholders connected to a system that validates and keeps the network safe.
- Immutability- something that is incapable of being changed. It cannot be changed once data is within a block and chain.
- Miners- people who verify transactions and add verified transactions to the blockchain.
- Cryptocurrency- is a digital currency that runs on blockchain technology.
What is blockchain?
A blockchain is a log used to keep track of transactions. They are usually decentralized, meaning keeping the blockchain up-to-date and accurate is distributed to various devices and owners. IBM defines blockchains as “a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.” These assets can be physical, like a house or car. They can also be intangible things, like intellectual property. Almost anything digital can be transferred via blockchain. However, in this case, size matters. If the blockchain becomes too big, it is inefficient to run. Therefore, text and links are usually used in the blockchain to save space.
Why is blockchain important?
Blockchain is a way of de-centralizing transactions, which makes these transactions faster, more transparent, and cheaper. Usually, if you were transferring money from one person to the next, a third trusted party would have to verify the transaction, usually for a fee. Blockchain usually de-centralizes this transaction process, making it faster and more efficient. Why do people want a decentralized transaction system? This removes the need for financial institutions that bear high costs, gives more freedom to the individual, and allows them to take back control over their finances and assets. While having a decentralized is one benefit, keeping the information accurate and free from discrepancies is another benefit. IBM expressed the importance of keeping information accurate and transparent during the transfer process. Blockchain is important because it is stored on an immutable ledger or an unchanging log that can only be accessed by those on a network that can use that information.
How does it work?
As a transaction happens, it is stored or recorded as a block of data, which, like a regular transaction, shows the movement of a thing (intellectual or physical) from one place to another. According to IBM, this “data block can record information of your choice” and is stored within that block indefinitely. The second part is forming a chain where previous blocks are linked together. This ensures that the time and sequence of events are recorded for transparency. This linkage is also for security measures to ensure that no blocks are being altered. Now, we have the final element of the system, the irrevocable blockchain. Each block that is formed throughout the transaction process strengthens the other. This makes the blockchain tamper-proof and, as IBM calls it, delivers “the key strength of immutability. This prevents malicious activity actors from accessing the data while building a linked list of transactions your network can count on.
What are the benefits?
The benefits of blockchain are insurmountable, as the nature of this chain is strong and interlinked, which means there is more security surrounding data and information. If you share your network with the right people, your sensitive data will stay secure. According to IBM, the “consensus on data accuracy is required from all network members, and all validated transactions are immutable because they are permanently recorded.” This means that all network members must log data accurately, meaning there shouldn’t be any faults within the system. As stated, all blocks are formed together to make a chain, making the transaction history secure and impossible to edit or change. Blockchains are also more efficient ways of validating transactions, as the ledger, or log, is distributed across the network. In addition, miners (people who participate in validating transactions) receive economic rewards or tokens when transactions are verified in the blockchain. This ensures that transactions will happen efficiently and effectively.
Where can I study blockchain?
There’s a range of ways to study blockchain technology. You can either study modules on blockchain and cryptocurrency or short courses that allow you to understand the fundamentals of the subject. Usually, if you decide to pursue a FinTech (Financial Technology) degree, you will often be exposed to information surrounding blockchain and other distributed ledger technologies. However, many Computer Science (CS) degrees may allow you to take modules or electives in this area. Look out for a Computer Science degree with a Blockchain Technology specialization. This then allows you to study CS while specializing in blockchain.
Here are some universities that offer modules and courses on the topic:
- The National University of Singapore (NUS) has recently released a short course to guide you through the fundamentals of blockchain and cryptocurrencies. This course takes approximately two days to complete and costs around $1800 for international applicants. NUS also offers crypto-heavy Master of Science in Digital Financial Technology courses.
- University of California, Berkeley offers online courses that aim to develop your understanding of cryptocurrency. In addition, if you take Computer Science or Industrial Engineering majors, you can undertake a module in cryptocurrency and blockchain.
- The University of Oxford offers an online course in crypto and blockchain. This course will teach you how cryptocurrencies and blockchain technology work alongside many other subjects. This is a six-week online course and will cost roughly £2300.
- EPFL’s FinTech degree program will introduce you to the digital technologies impacting financial services. Within this course, you will study blockchain and distributed ledger technologies.
- Massachusetts Institute of Technology (MIT) offers online and open courses that help you understand blockchain and cryptocurrencies.
Careers in Blockchain Technology
Due to the emergence of blockchain technology, the demand for professionals in this field has grown exponentially.
Here are some roles you could expect to see if you plan on breaking into the industry:
A blockchain developer is responsible for developing and maintaining blockchain applications. They should have a fundamental understanding of distributed systems, blockchain protocols, proficiency in programming languages, and smart contract programming. A blockchain developer's average salary per year is approximately $146,250.
Blockchain architects plan and construct the overall structure of the blockchain systems. This position requires an in-depth understanding of blockchain architecture, cryptography, and network protocols. The average salary for a blockchain architect is $161,000 - $274,000 per year.
A person in this position is responsible for designing and implementing blockchain solutions. This person can design, analyze, and support distributed blockchain networks. Those in this position are expected to have a strong background in software development, be proficient with programming languages, have experience working with codebases, and have hands-on experience in open-source projects. The average salary for a blockchain engineer is $160,000 per year.
A blockchain researcher explores the subject to develop our understanding of blockchain technology further. In this position, a person must have excellent research skills, knowledge of cryptography, and an in-depth understanding of blockchain. The average salary for a blockchain researcher is approximately $179,000 per year.
Blockchain is an incredibly intense and rich subject with confusing terminology and many details. In essence, blockchain is about the transference of information in a manner that is decentralized, giving security, authority, and transparency to those who use it. The benefits of blockchain are extensive. Although it may be complicated for a computational novice, blockchain promotes security within the network by keeping your data securely locked in immutable chains. Those within the network must keep the transactions up to date and verified, ensuring efficiency.