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How the blockchain works
With the pandemic we have seen an acceleration towards the digital transition. Of all the services and technologies that have seen their use increase, a surprise has certainly been cryptocurrencies. To date, we have all heard about bitcoin: forums, comparison groups, newspapers and television have made cryptocurrencies a workhorse, representing them as an innovation and tool for individual economic freedom, or more frequently as mere speculation that would have involved the opposite effect. One thing is certain, during these disputes, some of the largest and most powerful institutions in the world have decided to invest in the blockchain. The theme is so current and concrete that it is possible to find ATMs, in the most populated cities, for the conversion between official currencies and cryptocurrencies.
In fact, I am partially wrong to make a distinction between the two types of currencies: in fact, on September 7, 2021, El Salvador recognized bitcoin, becoming the first country in the world to adopt it as legal currency. Previously, countries such as Tunisia, Senegal and Venezuela had introduced other digital national currencies operating on blockchain. But maybe we are running too fast.
For those who are not clear about all the phases of the process (from the creation of the first blockchain to the development of innovative technologies that use it, up to all current and future applications), here is the first of a mini series of articles that will allow you to brilliantly hold a conversation on this topic.
A small clarification: I will not deal with the topic in a too technical way, rather the goal is to provide an in-depth explanation in the simplest possible way
In fact, I am partially wrong to make a distinction between the two types of currencies: in fact, on September 7, 2021, El Salvador recognized bitcoin, becoming the first country in the world to adopt it as legal currency. Previously, countries such as Tunisia, Senegal and Venezuela had introduced other digital national currencies operating on blockchain. But maybe we are running too fast.
For those who are not clear about all the phases of the process (from the creation of the first blockchain to the development of innovative technologies that use it, up to all current and future applications), here is the first of a mini series of articles that will allow you to brilliantly hold a conversation on this topic.
A small clarification: I will not deal with the topic in a too technical way, rather the goal is to provide an in-depth explanation in the simplest possible way
What is the blockchain?
In 2008, the first blockchain was invented by Satoshi Nakamoto, whose true identity is still unknown, and was implemented the following year. Its function was to serve as a ledger of all transactions of the bitcoin digital currency. 2009 is a year that fans of this world, market and lifestyle will not forget: this coin was used for the first time in history for a purchase and pizza is the lucky holder of this honor. In particular, a developer from Florida, to prove the real existence of bitcoin, bought two pizzas paying them 10 thousand bitcoins!
To explain this in a simple way, we can imagine the blockchain as a gigantic database of linked information that acts as a record of every transaction that takes place within it. The difference between a traditional database and the blockchain is that the latter is decentralized, that is, there is no authority that commands it. The system is there and continues to work thanks to all those who use it, because they make their computers available to maintain the blockchain.
We can represent it as an ever-growing list of encrypted blocks. The data of a block, once written, are incorruptible: no one can delete or modify them without also altering the subsequent blocks, an event that would require the approval of the majority of the network.
Each time a block is modified or added, the register is then shared with all the nodes, which will validate the new transaction after checking the entire blockchain. The blockchain explained in a simple way
I want to take a step back now, more precisely to 2008, when it all started. It is necessary to talk about why the first blockchain and bitcoin were conceived and built.
For the less informed, that year in the US a crisis that lasted several years broke out and affected the whole world. It was caused by subprime mortgages, but before talking about what happened, I want to make a premise. Already in 2006 there began to be signs: the mortgage payments rose significantly with interest rates that increased exponentially (a particular obscure to most buyers) and many people saw their home foreclosed.
Returning to the subprime mortgage, it is a loan for the purchase of the house granted to a person with a low credit score and therefore a history of defaults, foreclosures, bankruptcies or delays. The subprimes were packaged in derivative instruments and sold by banks around the world: their value depended on the performance of debt payments. With the decrease in the price of the houses, a mechanism of sale of the same and of the derivative instruments was triggered which culminated with what in jargon is called panic selling, or the sale for fear of a substantial collapse in prices. The consequences were the bankruptcy of some banks and the loss of capital for all those who had bought the subprime packages as derivatives. Blockchain and bitcoin
Central banks have the power to increase or decrease the amount of money in circulation and therefore to actively intervene in the world economy. Bitcoin was therefore born with the aim of trying to limit this power.
After the crisis of 2008, the lack of trust in these institutional bodies led to the construction of a peer-to-peer system that did not include authorities capable of influencing the economy, positively or negatively. We have already talked about the decentralization of cryptocurrencies, which is the principle behind the aforementioned concept. Bitcoin itself, as it is structured, is clearly a symbol of the fight against indiscriminate economic development. In fact, in the conception of his blockchain, Satoshi Nakamoto has imposed a maximum limit of available coins, not yet reached through mining of the miners, of 21 million.
Furthermore, the intention of Satosyria is to create a system of transactions that would guarantee almost total traceability to the working users: in fact, an exchange of coins takes place through the connection of what in jargon are defined as wallets, which in practice are addresses made up of numbers. and letters that guarantee anonymity but not untraceability.
Although the bitcoin blockchain is secure and decentralized, a scalability problem remains, due to what is defined as the "trilemma" of the blockchain, that is, the condition that concerns the three fundamental principles of the blockchain: security, scalability and decentralization. The blockchain is decentralized, it is mathematically secure but all this comes at the expense of scalability: in fact, bitcoin can only make 7 transactions per second.
Precisely for this reason, over the years an additional layer has been developed to support the bitcoin blockchain, so as to increase its scalability, usability and speed. This layer is called "Lightning Network". It provides for the execution of some off-chain transactions, therefore not transmitted in the bitcoin blockchain. The concept takes advantage of the creation of a channel between the two members of the transaction who are exchanging money. In essence, therefore, the transactions performed on the dedicated channel take place instantly without any transmission to the blockchain. In fact, only the opening and closing transaction will be transmitted to it.
