Bitcoin / Blockchain 101 explained in beer

Bitcoin / Blockchain 101 explained in beer

Blockchain in beer

I’m having a great time at some barstool in my local pub enjoying a nice pint. You join me and I buy a beer and give it to you. Now I don’t have a beer anymore but you do. No hard math acquired. This was very simple or not.

What happened here was not just me loyally giving away drinks. What happened was a physical transfer. That beer went from my hand to yours. And we both know it happened, you accepted the beer and hold it.
There was no need for the bartender to help us with this transfer and confirming the beer went from my hands to yours.

The beer is yours you can do what you want with it, drink it, zip it, throw it over that annoying dude over there. Whatever its your beer, you can do with it what you want and I cant give you another beer, because I have no more beer left to give. It was a simple person to person exchange and it does not matter if it’s a glass of wine, a 100 dollar bill or a pineapple.

So far the real world and going digital. What if I have one digital beer and I want to give it to you. You go to your favorite digital bar and see a new beer. But how do you know that particular beer is now yours and only yours and how would you know it came from me. Finish that beer and think about it for a bit(coin)
How would you know I did not have made thousand of copy’s and send all my friends the same beer. Or place it at a website to download for everyone. Giving digital beers suddenly looks a complete different thing than giving a physical round.

What we need is a accounting book ledger and tracking all this digital beers. In many online games you can buy extra stuff. All the things you buy are recorded in a central place. The database of that particular game.. Problem solved!... Not quite yet.

There are more issues to be addressed. What if someone hacks that database and moving my digital beers to his collection. Or what is the database keeper desides to take all the beers and run or simply create more. We need the bartender to validate all beer transactions and keep the database honest.

In November 2008 Satisho Nakamoto came up with a very good idea how to solve it. It is still in debate who he or she actually is. It’s also in debate if he came up with this idea.

The basic idea was, what if we gave this ledger / database to everybody??!! All beer transactions ever happened and will happen will be recorded in it. And everyone can watch it, review it check it it’s an open ledger for everyone to see.

It’s cheat prove. If I own one digital beer and give it away this transaction is stored and I don’t own that beer anymore and I cant send it to anyone else since I don’t own it anymore. I can try, but my ledger will be out of synch with the rest of the ledgers and it won’t be accepted. For the same reason I can’t create extra beers.

He also figured out a way to verify all the transactions. You can participate in this ledger and get a reward in zips of digital beer for your efforts.

In November 2008 Satoshi he wrote this paper. And what I described above was called the Bitcoin Protocol and the digital beers are the Bitcoins and the ledger is called the blockchain and participating in the verifying transactions is called mining. Ill go in a bit more detail in the next paragraphs.

In reality, it is all relatively easy to understand. The Blockchain is a public ledger where transactions are recorded and confirmed anonymously. It’s a record of events that is shared between many parties. More importantly, once information is entered, it cannot be altered. So, if the blockchain is the public record, what is being recorded? What are all of these “transactions”?

Cryptocurrencies, like Bitcoin, are currencies that exist solely in digital. There are no physical golden coins with a big “B” on them. Moreover, owning these non-real coins entails a new idea of “ownership.” You don’t literally have it in your hands, or even in your bank account, and not even in your Bitcoin wallet (see article how to store your coins) but you have the ability to transfer “ownership” to someone else simply by creating a record in the blockchain. Rather than using bills, your transfer is pure data. The public nature of the blockchain means that anyone can check it. It is effectively anonymous, yet public, simultaneously, and it is in the best interest of users if it remains so.

What happens when you send some Digital beers

What miners do is quite similar to real-world miners in that they are actively looking for something. Their computer repeatedly works through complex calculations to find a very specific answer and when they do they get rewarded with some digital beers

Miners solve problems, but how in the world is that helpful? Short story, miners are actually verifying that transactions posted by other users are legitimate, and the numbers all add up. Long story…

Miners collect transactions and put them into a single block. A block generally contains four pieces of information: a reference to the previous block, a summary of included transaction, a time stamp, and Proof of Work that went into creating the secure block. The blocks are strung together into a chain—a fluid chain that does not allow for any inconsistencies; this means there are no “bad cheques” in the system, and transactions entered are necessarily valid and can be processed. By checking the blockchain and confirming transactions, the entire system is effectively self-regulated and fully secure. No, that doesn’t mean some kid cooped up in a basement can just click “okay” and confirm a billion dollar transfer. Blocks generally need numerous independent confirmations, and the equations are intended to be hard to crack. Not to mention, the hardware required is far more specialized than the average laptop. Finally, what’s to stop someone from simply going back and editing existing blocks? Each block is securely hashed—meaning it is rendered into seeming gibberish and nearly impossible to invert or undo. Once it’s in the blockchain, it’s there forever.


Satoshi made it all open source and he defined the rule that there is a maximum number of Bitcoins (digital beers). Within the system when beers change hands its updated and verified by the public ledger and suddenly the digital beer exchange behave like an exchange of a physical object… and it is still digital. And because of that I can send even 100,000 beers at once or a very small zip.

I can even attach other digital things to it, a digital note, or contracts, ID info etc. The possibilities are endless… and that’s why we see numerous blockchains and over more than 1500 crypto currencies at the moment… Al the same but all a bit different, technology and applications are in constant development and we could even argue that Bitcoin is a dinosaur in the current crypto world. Or it’s the Adam and Eve (the first block is called the Genesis block) of crypto and will live on forever.

So this is great! How should we treat or value these “digital beers”? They’re quite useful aren’t they?

Well, a lot of people are arguing over it since and will ever do. There’s debate between this and that economic school, between politicians, between programmers. Don’t listen to all of them though. Some people are smart; some are misinformed some try to save their own (banking) ass. Some say the system is worth a lot; some say it’s actually worth zero.

Some say it’s digital gold; some say it's a currency. Others say they’re just like tulips. Some people say it’ll change the world; some say it’s just a fad. Fact is Bitcoin is over $8000 worth at the moment I wrote this and a $250,000,000,000 market capitalization in the entire crypto world and over 1500 coins.

Off course not all those 1500 will survive, there is a lot of crap out there and I cant imagine paying at an online store in the future and have to select over a couple of thousand payment methods. Only the strong will survive and no one knows who…evolution, survival off the fittest we will see.


Cheers

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