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A Blockchain Explanation Your Parents Will Understand

4 Jan 2018  /  Business  / , ,

The world of technologies is changing very rapidly. Not so far ago we couldn’t imagine the fact that every single person would have a mobile phone. Do you remember those moments when you had to explain your parents/grandparents how to use it? Later on, the Internet came into our daily life, and again the young generation of people had to explain to adults what is that, how to use it and so on.

And in the moment, when everyone feels more or less comfortable with technologies – the blockchain revolution came into our life. And again, we struggle with the questions from our parents “What is blockchain?”, “Who needs it and why bitcoins are so popular?”, “Can you get a couple of bitcoins for me? I would like to buy a new car”, etc. Have you ever heard one of those questions? If “yes”, read this article and find out answers to the most common questions regarding Blockchain.

What is the Blockchain and how is it related to Bitcoins?

In his article, Jamie Skella compared blockchain to a shared record book. This book contains information about the creation of new blocks (lines). When a new line item is created – a new edition of the record book is published. This digital record book is stored in thousands of computers and synchronized as soon as the new block is created. It should be admitted that this record book doesn’t have a central location from which is shared to thousands of computers. It is updated after each transaction on every computer.

I would compare it to the economic or mathematical game, where everyone knows the rules, amount of the resources and conditions how do get the resource. Let’s try to understand it on the example of bitcoin – the cryptocurrency created on the principle of the blockchain. The idea of bitcoins is based on the money operations without intervention from the government. There is no head of the Central Bank of Bitcoins who can take a decision. Bitcoins cannot be copied also no one can take a decision to print more of those, which makes devaluation of cryptocurrency impossible. A maximum amount of Bitcoins is 21 million.

By whom was it created?

Satoshi Nakamoto created the software for Bitcoins in 2008. Using terminology of Jamie Skella, he created a record book and said: “Now 1 million of bitcoins exists, buy it, sell it, go for more”. Also, he (or she, or they – the real personality of Satoshi Nakamoto remains unknown) created rules of the “game”. There were few tries to uncover real personality of Satoshi. Despite the fact that in the blog he claimed to be 37 years old living in Japan, some take those facts as a false data. Satoshi writes in English fluently, as it is his mother tongue, and the Bitcoin software is not customized for Japanese.

In March 2017, the Newsweek posted an article claiming that Dorian Nakamoto (American with Japanese origin), is a founder of Bitcoin – Satoshi Nakamoto. This fact had no evidence and was declined by Dorian.

In May 2016, an Australian computer scientist and engineer, Craig Wright claimed that he created the Bitcoins. He also provided evidence, with records of the keys from the first transaction. But the fact is that this data could be easily found by any user of the system. Craig Wright didn`t provide any other evidence and gave up on his worlds.

In the end of November 2017, some journalists were talking about Elon Musk, businessmen, founder of the SpaceX, who probably is covered by the nickname “Satoshi Nakamoto”. This information was provided by Sahil Gupta, who performed an internship in the SpaceX. His suggestion was based on the several facts: the C++ language, which is actively used in SpaceX and by Elon Musk, was used for Bitcoin software; also Elon Musk always had a willingness to resolve global problems, Bitcoin was created in 2008 when the world financial crises started. Elon Musk refused those facts saying that the year of 2008 was the most unsuccessful for him, he would not have time and possibilities for creation of such a great software.

So how can I get the Bitcoins?

There are few different ways of getting Bitcoin: you can buy it from other users, sell some goods for Bitcoin, buy it on the Bitcoin market or start mining the Bitcoins. The process is very similar to oil production – the more oil is being in use – the less is left and the conditions of production are tauter.

Sounds weird, right? Of course, bitcoins are not oil, gold or coal BUT principle created by Satoshi Nakamoto is very similar to the one working on the oil production. We have bitcoins instead of oil and computer instead of a person. In order to get bitcoins – the person needs to open a new block.

As a result, we have the computer which is working on creating a special, let us say password (hash), which will fulfill all conditions and create a new block (new line in the record book). The condition for opening every new block is more complicated than for previous one. Once the block is opened, miner gets the reward – the certain amount of bitcoins. And it may last until the time when all bitcoins are founded.

Does it mean that I can “mine” Bitcoins from my laptop?

Only if you find a time machine. In 2009 it was more than enough to use a simple laptop for mining of Bitcoins. With time process becomes more and more complicated. Since 2013 mining without special equipment became not cost effective. The cost of electricity which is used during mining is higher than an average income.

Also, there are some gossips about the Bitcoin Farms, where computers with huge capability are earning millions of Dollars for owners of the Farm. In order to create something like that, there is a need to invest around $9 000 000 in the equipment, to get around $1 000 000 of monthly income.

How much can be earned by mining?

The amount of Bitcoins which could be earned by mining is divided by 2, every 4 years. In 2009 you would get 50 BTC, after second decreasing, in July 2016, the remuneration for mining is 12.5 BTC. By 2031 it is should be less than 1 Bitcoin, it will last until the time when all 21 million of BTC is mined.

Does government have any kind of control on the cryptocurrency?

Status of the bitcoin is different around the globe. It is being classified as a cryptocurrency, money surrogate, non-material goods, virtual product, etc. In Japan, Bitcoin is a legal payment method. In China, Bitcoin is a virtual product, not currency, which means that only individuals, not banks, can perform transactions.

In Australia, Bitcoin is treated as a property and any transaction as a barter. The first Bitcoin bank was created in Austria in February 2017. There is special ATM where you can exchange cryptocurrency to Euro, and in another way around – exchange Euro to Bitcoin. Similar ATMs exist also in some Asian countries and Ukraine, despite the fact that status of the Bitcoin in Ukraine is not defined yet.

Summarizing the above

The Blockchain is a record book, where each transaction is documented in the new line(block). Bitcoin is a cryptocurrency, each transaction with which is recorded in the Blockchain. To map a transaction – new block should be opened by miners. When a new block is opened – miners get a reward – certain amount of bitcoins. The system is quite simple in understanding. The only question remains open – how will it develop in future. Will it be a big step to the new future or system will just crush and something new will be introduced? What we can know for sure, is that future will surprise us.