There is a great podcast called 'Stuff You Should Know', where in one hour you will learn the basics around a particular topic – like ‘How the Nobel Prize works’ or ‘The Ins and Outs of Beekeeping’.

It is unlikely you will become a fully-fledged beekeeper after listening to it, but you might be able to at least pretend you know what you are talking about when your back is against the proverbial dinner party wall. This is what I am trying to do here…but with blockchain.

Look, the bottom line is that in a few years’ time you won’t need to know how blockchains work but will still be able to use it. Like I don’t know how the internet works and I still use it every day. The annoying part is, however, that you are probably starting to hear the words blockchain and crypto with increasing frequency and you should probably add it to the list of “stuff you should know”.

What is a blockchain?

Bear with me… blockchain is a system of recording information in a way that (if all goes to plan) is impossible to cheat, change or hack. A digital ledger of transactions that is distributed across the network. The validity of the transactions is agreed upon by members of the network and is not controlled by any one organisation or body (decentralised).

Yes, but what does it actually mean?! Blockchain is, essentially, what it says on the tin –blocks of transactions linked together into a chain in a sequential manner and recorded. That record is the ledger. Think of it like a giant database of transactions.

The vital element here is that the ledger is distributed and, as a result, the operation of it is decentralised.

The distributed point is important, because it means that identical copies of the same database are distributed to many various computers on the network (nodes). New transactions added to the blockchain need be agreed upon by multiple nodes, which is meant to make it harder to cheat the system. For example, if there is a fraudulent transaction, it will be easier to alter a single database, but when there are many versions of the same database spread across many computers, and they all must agree before the transaction can be added to the blockchain, the fraud becomes increasingly difficult (the bigger the network, the harder it is to cheat). 

Decentralisation, made possible by distributing the ledger, is also very interesting because our current world is extremely centralised, through banks and various other institutions holding the data. For example, if I wanted to transfer the ownership of my house to my friend Jane, in the current world the banks would handle the transfer of money, and the transfer of title would be recorded by a government registry office (which will hold the data and where you can then perform a title search). If we imagine the same scenario in the world of blockchain, both the money and the title transfer, would be recorded and verified in this giant distributed database, the transaction would be time stamped and validated by the members of the network (rather than a government body). The record of this transaction will not be able to be amended as it has already been processed and locked into a chain of transactions.   

In turn, decentralisation creates the notion of trustlessness (stay with me!), meaning you do not need to place your sole trust in any one stranger, bank, institution, or other third party in order for a network or payment system to function* (brain-explode emoji… I know right!).

The knock-on impact of this is that, in theory, we will not need intermediaries like brokers or government agencies to process and verify transactions. As you can imagine, this prospect of decentralisation can be both concerning and exciting, depending on who you speak to (hint: it’s exciting).

*Thank you Cryptopedia for keeping it real (and simple)!

How does a blockchain relate to Ethereum, Bitcoin and NFTs?

I heard someone describe blockchain technology as the train tracks that allow everything else to function – I think it’s a good way to describe it. Conceptually, the relationship can be broken down into three elements: network, protocol and digital assets (look I’m not a scientist, this is just how I made sense of it in my head!).

1)    Blockchain Network (the who?) – the network that operates the decentralised ledger (i.e. a bunch of people with computers who are connected to the internet who support the concept).

2)    Protocol (the how?) – a set of rules that the participants of the network must abide by so the system can function. Road rules, so to speak. Ethereum, Bitcoin, Solana are all examples of protocols with their own governing rules.

3)    Digital asset (with what?) – a token or a coin that is a store of value within the network, allowing the network to operate by creating ability to transact/trade within the network.  

Fungible Tokens (Coins, Cryptocurrency) are required for the blockchain networks to operate, for example to pay the transaction fees or for participants of the networks to get rewarded. Coins are digital assets and are a store of value, much like normal money (a.k.a. fiat money). Coins are fungible – all the same and not unique. Like a US dollar can be exchanged for another US dollar, and both notes will carry the same value, each bitcoin is the same as the next and carry the same value. It is normal that each different protocol will also have a coin associated with it. In other words, Bitcoin is both a protocol and a coin (no one said this was gonna be easy!). Same goes for Ethereum and many others.

Non-Fungible Tokens (NFTs)* are also digital assets but are more complicated than coins because they can have various unique, characteristics attached to them. These characteristics are contained within a smart contract and essentially contain the terms of execution (much like a normal contract). NFTs are a popular mechanism for digital art, a piece of music, a digital collectible or any other item that has unique qualities and is not easily interchangeable.

*Not all protocols currently have NFT functionality (e.g. bitcoin doesn’t)

Here is a very simple blockchain doodle by yours truly:

If you want to really oversimplify things, you could say Blockchain Network is Planet Earth, Ethereum Protocol is a country with its own laws (e.g. UK), while Ethereum Coin or ETH is the currency (e.g. GBP). You can only use GBP to buy things within the UK, because it is a currency of that particular country. If you want to go to Germany, you will need to exchange your GBP into EUR. Similarly, you can only use Ethereum coins within the Ethereum Protocol.

Although blockchain seems to have exploded into the mainstream over the last two years (I mean…the mere fact that we are talking about it right now) there are still plenty of cultural, infrastructure and regulatory hurdles to overcome before it’s truly integrated in our everyday lives. But just for fun, next time you meet someone, ask them if they own any crypto. If you look for it, I’ve got a sneaky feeling you’ll find that love - sorry, blockchain - actually, is all around.   

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