Blockchain Technology Beginner’s Guide

/Blockchain Technology Beginner’s Guide

Blockchain technology is truly a life-changing invention, read this and learn all about it.

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Blockchain Technology Beginner’s Guide 2018-06-19T09:21:17+00:00
Blockchain Technology Beginner’s Guide

Quick inner navigation:

  1. What is blockchain?
  2. How does blockchain work?
  3. Blockchain and Bitcoin
  4. Why do we need blockchain?
  5. All blockchain terms you don’t understand: explained!
  6. Blockchain and Security
  7. Centralized things that blockchain can decentralize

What is blockchain?

Bitcoin, Litecoin, Ethereum and many other cryptocurrencies keep becoming super popular around the world. People call these the future of finance and the best ways of avoiding from the centralized, bureaucratic, sometimes even corrupt systems that are currently leading the world. However, people often forget that the heart and soul of these and many more cryptocurrencies is a sole technology known as blockchain that deserves all the credits of the true game changer.

There have been ripples among the internet geeks with the advent of cryptocurrencies or digital currency. These currencies have a lot of hype with many people referring them as a move towards freedom from government restrictions. The most popular of these currencies is Bitcoin that was invented in 2008 after the invention of the blockchain technology. A lot of blockchain for dummies articles are all over the internet trying to help people understand this invention. That is our aim in this article.

  • Blockchain technology is a revolutionary invention that allows data to be recorded on a decentralized platform.
  • It is a kind of a public ledger.
  • It is in simple terms an internet of value.
  • It allows peers to freely distribute money much the same way as information is distributed on the internet.
  • It was invented by an individual or a group of computer geniuses known only by the pseudonym “Satoshi Nakamoto”.
  • The term blockchain is very popular for its association with Bitcoin that people refer to as the digital gold.
  • This technology can be used for various purposes other than transferring money, like architecture planning and legal business.
  • People can change and edit information at the same time while verifying at the same time, as simple as in case of Google Docs.
  • All the data recorded on the blockchain is incorruptible and is transparent.
  • It has no central point of control as it is recorded within a distribution of computers thus enforcing transparency and is never censored by any authority.
  • Anyone with an internet connection can access this data.
  • It is verified every ten minutes to ensure that no hacker has absolute control.

A block is a group of transactions recorded on the blockchain. This block is usually recorded on the blockchain once it is complete and verified.

The blockchain is a great invention with various uses. It was first invented to record financial transactions of cryptocurrencies like Bitcoin, Ether, Ripple and many others. Now, it can be used for other functions such as

  • Peer to peer energy trading.
  • Peer to peer insurance.
  • Peer to peer ride sharing.

It is important to note that there are several types of Blockchains:

Private blockchains

  • Transactions are within one centralized organization.
  • The central authority decides which information should be public.
  • There is a group set specifically to check transactions in such a blockchain.
  • They are important for preventing fraud, improving efficiency and ensuring security within private institutions.
  • Good examples of such a chain are auditing and database management within a particular company.

Public Blockchains

  • These are based on a consensus mode or Proof of Work.
  • They are decentralized and open source allowing anyone to participate in its transactions without permission.
  • Anyone can write, read and audit the blockchain as long as they are connected to the internet.
  • Any person can see the transactions, and also send transactions within the blockchain.
  • These transactions are transparent, but anonymous at the same time.
  • Some examples of this technology include Bitcoin, Monero, Dash, Litecoin, and Ethereum among others.

Federated or Consortium Blockchains

  • These operate under a group leadership and does give permission to everyone with an internet to validate transactions.
  • They are faster and provide more scalability as well as better privacy.
  • They are mainly used in financial institutions like banks.
  • Transactions are validated by a set of pre-selected nodes.
  • A group of institutions agrees which nodes should sign to validate transactions.

Blockchain and Bitcoin

Now you may think, “What is the relationship between blockchain and bitcoins?” While blockchain is a list of ongoing transactions or blocks recorded in a distributed public ledger, bitcoin is a cryptocurrency that relies on this technology to have its transactions recorded and verified in the same manner. Here are some more questions that may be of your interest:

How does blockchain work?

  • Bitcoin blockchain is a public ledger or database in which transactions are recorded.
  • It is usually distributed across a network of peers who check and validate transactions before they are included in the chain.
  • It does not have any central authority and relies on the Proof of Work and proof of Stake and other protocols.
  • Peers are able to mine bitcoins by solving complex mathematical problems that are updated every ten minutes.
  • If the peers in the network approve of a particular solution, the group or individual who solved the problem is awarded coins, and the transaction is added as a block to the blockchain.

Who maintains blockchain?

  • Bitcoin blockchain has no central control or management.
  • Peers in the network collaborate over the distributed network to ensure only valid transactions are recorded.
  • Peers have an equal stake as each can download the code and make modifications that are seen by others at the same time.
  • If you have an internet connection and a computer, you can also participate in this management as an anonymous individual.

Is Bitcoin blockchain technology good?

This technology was to allow financial transactions online without involving traditional financial institutions.


  • It is a decentralized technology that seeks to avoid numerous currency restrictions by the government.
  • It allows peers to carry out financial transactions without exposing their identity.
  • It has low transaction fees as compared to traditional financial institutions.


  • It is used for criminal activities such as money laundering.
  • It is not scalable.
  • It is slow due to the bulk of transactions carried out.
  • Majority of mining pools are within China posing a threat to the decentralization feature.
  • With one pool controlling a vast amount of hash power, they can easily bring down the technology or get seized by the government.

Blockchain Explorer

Blockchain explorer is a blockchain browser that has information in a human-readable format. It is the same as other contemporary browsers like Chrome and Mozilla, but now with bitcoin information. It is very important for everyone immersed in the digital currency world. This content contains bitcoin transactions and blocks. You will be able to see the latest blocks and can also click on links to move to previous related data. This information is important because

  • It shows blocks’ sizes.
  • It shows when each block was mined and added to the chain.
  • It shows the transactions contained in every block.
  • Shows how block rewards are distributed among miners.
  • Show number of all unconfirmed transactions.
  • The a part of the explorer shows statistics and charts of the network.
  • Shows whether the difficulty in mining will get complicated or easier.
  • You can also look for transaction IDs and addresses.

Why do we need blockchain?

Blockchain can help to record transactions and contracts in a transparent and verifiable manner. It will also be possible to eliminate middlemen like brokers, lawyers, and bankers who make these transactions very expensive.

The technology would instead allow individuals, organizations, and other entities to interact freely with one another. The world is by large controlled by contracts and transactions. The traditional method of recording and keeping the records is not as efficient and secure. Blockchain technology promises to have these records in a secure and transparent ledger that will be difficult to manipulate. This ability if successful will significantly change the world.

Blockchain and Decentralization

As blockchain is a public decentralized ledger that transactions and records of those transactions are distributed across a system of public servers. Everyone in the network has the permission to work on the data supervised by a network of peers. In a sense, it is a distribution of peers who don’t trust each other and have to independently verify transactions before they are added onto the blockchain. There is no single peer that has an upper hand nor is there a super controlling central authority.

Why is it good?

  • There is no controlling authority.
  • Everyone can carry transactions that will be verified by peers hence no chance of manipulation.
  • There is no central point of failure hence the system is less likely to fail.
  • It’s almost impossible for peers to collude.
  • There is a consensus agreement that no peer is able to breach.

Centralized things that blockchain can decentralize

  • Financial transactions including sending money from one person to another.
  • Legal and business transactions. We can have transactions recorded permanently in a decentralized platform with close monitoring from the peers.
  • Cybersecurity. The encrypted data that is also verified by peers is difficult to hack.
  • Can be used for forecasting- read about Augur.
  • The technology will improve trust management in insurance contracts.
  • Cloud storage. This will be more secure and flexible as opposed to data stored in a centralized system.
  • Ride-sharing and private transport. This tech can allow car owners and users to properly negotiate terms without involving a third party like Uber.
  • Voting is sometimes marred by irregularities. This technology can be used to register voters and allow electronic voting that will reduce cases of rigging.
  • Health institutions will be able to solve problems related to storing and sharing data. The technology will allow hospitals to properly store data and give access to the required personnel. This will improve data management and make diagnosis and treatment much faster and easier.
  • Real estate. It is set to eliminate bureaucracy associated with this industry. There is also lack of transparency and a lot of data manipulation that the technology will eliminate.
  • For more, read our article about smart contracts.

Blockchain and transparency

The blockchain is open and public. All transactions are recorded and stored in a decentralized public ledger that all peers can access. Entries into this ledger are only possible if everyone in the network has validated the transaction. This level of transparency eliminates the need to have checks and balances.

Though it is difficult for the blockchain to be corrupted, it is possible. For instance, if a large section of pools is in one location, governments can easily cease the hardware and destroy. The pool peers can also collide and alter some transactions since they have a higher hash power.

Blockchain and Security

There is no central controlling authority within the decentralized blockchain. It is, therefore, very difficult for a hacker to access data from the different servers. The data is recorded and stored in hash functions making it difficult to overwrite or change.

Criminals often target centralized locations to manipulate data. This is not possible with the decentralized ledger. Any changes in this ledger are immediately made visible to the network participants who have to approve them. If any of the participants are not content with the changes, they will not be recorded.

All blockchain terms you don’t understand: explained!

There are some blockchain terminologies that you will come across in your quest to learn about this technology. It is important that you understand what they mean to keep in tabs with what’s happening in this industry. Let’s look at a few of them.

Distributed Ledger (DLT)

This is a database that is shared across a network of multiple sites, geographies and institutions through a consensus mechanism. An example of such a ledger is the blockchain that bitcoin is based upon. It is the platform on which transactions are recorded and stored and is often decentralized.

  • Allows participants in a network to witness and verify a transaction publicly.
  • Participants are able to access data from any section of the network and produce a copy of the same.
  • Any changes made on such a ledger are sent to all participants for verification.
  • Information is stored using cryptography and one can only access it using a private key.
  • All the information stored on this ledger is under the rules of the network.
  • The transactions are very secure since a hacker would need to attack the distributed servers simultaneously which is next to impossible.
  • Can be used to record contracts and other business transactions eliminating the need for checks and balances.

This technology has the potential of changing how governments and other institutions work. It can assist the government to curb tax fraud, improve service delivery such as giving out passports, licenses, and land registries among others. It can also make a significant change in the electoral process. It is also having an effect in the entertainment industry, supply chains, and others. This technology though is still in its developmental stages and could only get better.


Peer to Peer (P2P) is a model of transaction that is decentralized allowing individuals to contact and interact directly with one another in trade and other activities. This form of transactions or interactions seeks to avoid a third party to act as an intermediary.

  • P2P is a break away from traditional capitalism in which workers never owns the means of production.
  • In the blockchain technology, P2P is the underlying means of transactions.
  • Individuals are able to carry out transactions of all kind avoiding the third party.
  • Avoiding the third party reduces operational costs.
  • There are risks with P2P in its basic sense that the seller might not provide the goods, or might provide low-quality goods and that the buyer might refuse to pay.
  • However, the low transaction costs and the reduction of bureaucracies make this a viable option.

Let’s see how P2P connects with the blockchain

  • Blockchain was initially all about digital currency.
  • The aim of this technology was to enable peers to exchange money buying goods and paying for services electronically.
  • Blockchain technology allows such transaction to occur without involving a third party. Since all transactions are recorded on a public ledger, the risks of not getting paid have been eliminated since peers must verify all legal transactions.

So, P2P basically is a form of interaction between peers without involving a third party. Blockchain technology is underpinned by this idea.


These are the set of rules that participants in a network must adhere to. They govern the entire network. These rules include guidelines about the consensus module, validation of transactions as well as the rules for network participation. Any peer who violates the network protocol is essentially removed from that particular network.

Bitcoin is a good example of a network protocol- PoW. When mining bitcoins, miners must solve complex cryptographic problems. Once a group of miners manages to solve a given problem, the peers must verify that particular action and allow the miner to add that block on to the blockchain. These are the protocol or rule that underpins the mining of many other cryptocurrencies including Ethereum, Dash, and Litecoin among others.

  • Protocols are also known as an access method.
  • It is a standard that participants use to set principles or methods of exchanging information with a given network.
  • Each protocol within each platform has its peculiar methods of checking data and verifying its authenticity.
  • Among the most common standard method or protocol is the HTTP (HyperText Transfer Protocol). This protocol is used to distribute data over the World Wide Web. This technology is the same that blockchain uses to check the distribution of data. Bitcoin, Ethereum, Dash and all other digital currencies have their own protocols.

Blockchain as a Service (BaaS)

BaaS is a system in which companies create to offer services using the blockchain technology. It can be based on various coins including Ethereum, Stratis, and Bitcoin among others.

Here is a BaaS solution that will shed more light on this term;

Ethereum BaaS by Microsoft Azure

The system was a partnership between Microsoft and ConsenSys creating (EBaaS) or Ethereum Blockchain as a service. This service aims at

  • Allowing developers, clients and partners to use the distributed ledger technology with just a single click. It gives them cloud-based developer environment.
  • Enables parties to learn, play and fail at a minimal cost since the environment is ready made and tested.
  • Allows participants to create public, private and consortium blockchain environments.
  • Such a service will provide openness and transparency not only in the financial sector but also in other sectors that transactions and contracts are made.
  • BaaS will revolutionize offering of services such as licensing, voting, social services, and management among others.
  • It will also offer tighter cybersecurity preventing unwarranted hacks and disturbances.

APIs & Overlays

Application Programming Interface (API) is the code needed to create the back-end that runs the system. The code is necessary to run most FinTech innovations. In simple terms, APIs is a set of procedures and functions that enable the creation of certain applications. The applications control the data of an operating system, another service or application. They are essentially the engine of any application or system software.

  • APIs speed up operations and innovations as businesses have more time since they do not start from scratch that requires one to build a back-end.
  • An overlay is simply a computer network put on another network in which nodes are connected by some virtual links. An example is the peer-to-peer networks and client-server applications.
  • An overlay involves transferring a block of a code or other information into a particular internal memory, essentially replacing that which is already there. It involves dividing a program manually into object codes that are self-contained called overlays.
  • These overlays are set into a tree structure.

So, what are the applications of overlays?

  • Provides new applications.
  • Increases security within the system.
  • Use of encryption requires that the end-users must be authorized to use the connections.

to sum up…

Blockchain technology is truly a life-changing invention, which already has and will continue improving further a number of spheres.

We are glad that you are reading our publications. We intend to continue simplifying the digital currency industry to enable you to understand as much important information as possible.

Please check our site for more of these informative articles.

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