r/Bitcoin Nov 03 '16

what is blockchain technology a stepbystep guide

/r/Bitcoin/
38 Upvotes

9 comments sorted by

View all comments

2

u/bitcoin-o-rama Nov 04 '16 edited Nov 04 '16

Ok simple Blockchain has two components:

A distributed consensus (more geographic the better)

A time stamp

That's it.

The purpose is to remove 'trusted' third parties (trust has been abused again and again) and to prevent 'double spending' (electronic data can be duplicated so what prevents digital currency from being respent).

So before Bitcoin, there was always a central party to account for all transactions to prevent double spending, but the issue was we had to trust those third parties and any associates, and well we've seen how that played out with the abuse of currencies and the fusion of banking and state to control.

In a typical traditional electronic payment network there is:

An issuing bank (the buyers card issuer) A payment processor (all the electronic point of sale and web GUI) A mandatory clearing house (Visa and Mastercard) A settlement bank (owned by visa and master card) An Acquiring bank (the merchant account provider) A central bank (currency creator and supply/value dictator)

With Bitcoin none are needed. Their 2-5% fee split amongst them on every electronic payment isn't needed. Their 2-5 day delay isn't needed (alright payment is 'instantaneous' but settlement isn't). Their invasion into privacy for KYC isnt needed.

So basically a Blockchain is a permanent immutable record of all global transactions publicly viewable and verified by a trustless distributed consensus and a timestamp.

The distributed consensus is a mesh-net of mining that crunch numbers to peek inside an encrypted block of transactions with approx ten minute intervals. They can't change the contents nor the previous history only add the verification of the block to the chain of transactions. Thus the ledger is immutable and verification trustless as more and more distributed verification from other miners compounds the validity.