To understand blockchain, we can start with what we’re most familiar with: the Internet.

On the Internet today, we transfer money through mobile banking or third-party payment institutions (such as PayPal and Alipay), so imagine being able to move assets freely online without relying on intermediaries.Simply put, how can we transfer money freely if there is no bank, no Alipay or PayPal?

 

So people started thinking about how to decentralize peer-to-peer transactions? 

The king of cryptocurrencies, Bitcoin, first succeeded in implementing this approach, and based on the system design of Bitcoin, people abstracted the concept of "blockchain".

 

What is a “blockchain”? Let's do some investigation.

 

The essence of a blockchain is a decentralized and distributed database. In specific terms, how do you understand decentralization?

Suppose Mr. X's whole family, including Mr. X, Mrs. X, Grandpa X, and Grandma X, all recorded their expenses in their own books.Because Mr. X's family members do not trust each other. Mr. X pays Mrs. X every month for household expenses, but Mrs. X may receive $1,000 but only report the receipt of $100, so isn't this family account book inaccurate?

 

So how do we solve this problem with blockchain?  

If one day Mr. X gave Mrs. X $1,000, he would just inform the whole family that he had given Mrs. X $1,000 and ask everyone to write down in their books “Mr. X gave Mrs. X $1,000."

 

So, each member of Mr. X’s family becomes a node, and each transaction of Mr. X’s family is recorded by each person (each node). Every night after someone has washed the dishes (proof of workload) they can settle the bill on the communal ledger, and the dishwasher is remunerated. New transactions must be added to the back of the ledger recognized by everyone the day before, and others will be involved in verifying the day's transactions.

 

Naturally, someone will ask if malicious actions can be taken to disrupt the entire blockchain system.What if the results of others are not recognized or faked?

For example, if Mrs. X suddenly says one day that Mr. X didn’t give her $1,000, the whole family will stand up and reprimand her. If Mrs. X tried to play a trick when settling the accounts after washing the dishes one day, the other participants would stand up and berate her (unless she can buy off more than half of them). If not, it would result in her washing the dishes for nothing that day, not getting paid, and probably having to do the dishes again the next day. The last recognized ledger will only show an increase, not a decrease. Family members who join later will continue to settle their accounts from the longest ledger.

 

Therefore, in the above example, blockchain assumes the role of a large distributed ledger, which can record the entire family's ledger and ensure the transparency and credibility of the ledger.

 

By understanding decentralization, we also understand the principles behind the word “blockchain,” i.e. "block“ and “chain”.

 

What's a block?

The block is actually like a little ledger that records every single transaction. Each block in the ledger is linked to the previous block by a password. Simply put, each new block must contain some kind of digital fingerprint (hash) of the previous block, that is, every little ledger is related to each other. Since each digital fingerprint points to the previous one, it will eventually link into a string of blocks, that is, a small ledger eventually constitutes a huge global village ledger, which is a cooler way of saying blockchain.

 

Because of the butterfly effect, all the transaction blocks are interlinked in a circle, ensuring that this huge distributed database is not tampered with. By understanding the block, you understand the most important concept, because going forward, every transaction you make in the crypto world becomes a block on the chain, and if you want to check your transaction history, you can always check the transaction information on this block on the blockchain browser.

 

It is precisely because of the "untamperable" character of blockchain that, without the guarantee and witness of an intermediary giant, the algorithm and incentive mechanism behind the blockchain attract a large number of other people to participate in the bookkeeping and ensure the smooth operation of transactions. For both parties, this transaction is a direct peer-to-peer transaction, and there is no need to transfer the assets to an intermediary account.

 

To give a practical example, if you transfer money over the Internet, you need to bind the bank card, and the bank account opening process is basically “Submit identity information - Open a bank account - Provide the bank card number - Set the bank card password - Account opening success”.If you need to transfer money, you'll need to know the other person's bank account number or receipt QR code, and the other person will always need to have opened a bank account in the background.For each transaction and transfer, the bank system or third-party institution system will record the flow data. 

Blockchain means that as long as both parties have an encrypted address, they can transfer money to each other without borders and without the need for cumbersome bank account opening and identification authentication procedures. 

 

Do you have a better understanding of blockchain now? Try completing your first blockchain transfer with us.