When you want to talk about this whole blockchain revolution...

to your family for friends, you probably start with "You've heard of bitcoin right?" But that's where the conversation usually turns towards "oh, that's what criminals use for payments right".

As we all know, the blockchain is so much more than that. I wrote an article as my introduction called The blockchain is the most revolutionary technology since the internet. And when people treat it like something behind the darknet, it doesn't do well for us (or them).

So I've taken to Steemit again to help us help the people we love the most (or sometimes people we just kinda like) to understand what this whole blockchain thing is about and how it works.

What is a blockchain?

A blockchain is a chain of digital blocks, and inside each block are facts. So what the blockchain can do is tell you what facts everyone agrees on. The blockchain allows everyone to form a consensus, and agree on a particular set of facts. That's what allows a currency to work on a blockchain. Everyone agrees that I sent money to you, so I have less, for example.

And the blockchain is distributed among many computers, so that there is no central authority that can alter or change the blockchain

So how does everyone agree?

Well there are certain algorithms that different blockchains use.

Proof of Work (PoW)

Maybe you've heard of people "mining" on blockchains like bitcoin. That is what helps everyone agree. Think of a game where teams try to guess a combination of a lock. The team who guesses the most combinations to the most locks gets to say what the facts are, and gets paid. But there's usually only one team, since everybody wants to be on the winning team. So everybody is helping to guess combinations and get paid. But one person wants to lie and say they spent their money elsewhere. They would have to wait until their first transaction gets confirmed, and their product is in their hands. And then they would have to start guessing more correct combinations than the rest of the world combined, something that is nigh on impossible. But it's not people guessing combinations, it's many computers guessing at millions of times per second to a super-complex combination lock. This uses a lot of power, which is one of the criticisms of the Proof of Work algorithm.

Proof of Stake (PoS)

Imagine there is a group of people who have to agree on a ledger of facts, transactions, etc. But in order to be able to pick a ledger, you have to put $1000 on the table. Now, a series of ledgers are passed around the table for people to sign. If you sign the ledger that the most people sign, you get $10, if you sign a different one, nothing happens. But if you try to sign two or more ledgers, you lose your whole $1000. This makes everyone agree on the one ledger of facts and can continue to sign more ledgers from there. But it's computers with currency on the blockchain that "stake" their currency on a ledger to get paid for it. But this causes people to hoard currency, which is the main criticism of the Proof of Stake algorithm.

Supermajority Consensus

The point of this algorithm is just to prevent any one person from spending the same money in 2 places, so we really only need to choose one ledger or another, since the same person can't be on one ledger twice. 80% of the people must agree. Think of it this way, a group of people have 2 doors to walk through. 80% of the people have to walk through the same door or they have to go back and try again. Now, one person could lie and say they walked through both doors, but it would be easy to tell who that was (they voted on a ledger that contained 2 transactions from the same person), and nobody would ever trust them again. Eventually everyone will agree on which door to walk through, making the other door invalid. This sounds a lot like Proof of Stake, but nobody stakes currency. It's a little less secure, but real world data seems to say that it works. This is a more technical explanation of how this works.

How do these people get paid?
They get paid money that is generated by the blockchain. Think of when the government prints new money, but instead of keeping it for themselves, they would distribute it to everyone. Or at least, distribute it to the people who keep everyone's transactions safe and secure. For some blockchains, the money is not generated, but included as a fee in each transaction.

Smart Contracts

Imagine you are renting an apartment. Normally, you have a contract that says the renter has a deposit of, let's say, $1000. The contract says that the owner gets to keep the deposit if there are damages to the apartment. You have to hire a lawyer to draw up the contract and a bank to keep the deposit. With a smart contract, you simply create code on the blockchain that says:

if our sensors indicate you damaged the apartment, transfer $1000 to the owner, otherwise return the $1000 to the renter at the end of the lease

Then, the renter has to put $1000 in limbo on the blockchain to execute the contract, which will remain there until either the contract triggers or expires. You could also have an employment smart contract that says

pay this person $15 per hour worked based on clock in/out times every week unless the employee is fired or quits.

And the employer would have to put no less than 40x15 dollars to back the contract (40 hours, no overtime). And the clock in/out times could even be tracked in the smart contract itself, so that it can't be manipulated. With smart contracts like these, you remove the need for a lawyer and a bank (although you'd probably add the need of a programmer).

Is it really anonymous if everyone has a ledger?

Some cryptocoins are, and some are not. Bitcoin, for example, is NOT anonymous. And if you're determined, you can trace transactions back to someone that bought the currency for USD or other real money. The problem is that transactions look like this:

1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 sends 0.1 BTC to 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

So it's extremely difficult to follow the chain all the way back to the source. But it is definitely possible.
Other coins use a complex one-way algorithm to hide transaction data, so they would be anonymous since you don't know how much money is being transferred.

Thanks for reading

This has been Alavan. I hope you've enjoyed this article.
Remember to upvote, and if you want to be super-awesome, give me a follow.