In 2008, Satoshi Nakamoto invented the first cryptocurrency - Bitcoin: A Peer-to-Peer Electronic Cash System.
Bitcoin is essentially “an electronic payment system based on cryptographic proof instead of trust.” Without a trusted, centralized third party, such as a bank, two willing parties can transact directly with each other.
But how does it work? The answer is blockchain.
What is a Blockchain?
Think of blockchain as the future version of cloud, but without having to trust it. We’re so used to iCloud, Google Drive, AWS today, but we’re still trusting these centralized servers to perform and protect us.
Blockchain is a technology that stores data in a way that is immutable, secure, and decentralized.
In short, your data and many other people’s transaction data will be picked and packed into a “block”, encrypted with the most complex encryption method, checked and agreed on by a lot of verified parties all over the world instead of a single centralized entity, and this block of data will then be verified and attached to the previous block.
It’s literally a chain of blocks, thus, blockchain. No one can go in and change the previously published data, and the database does not belong to anyone either.
The parties who pack and process the data are called miners, for every block published, Bitcoin will be used to reward the party who did the work.
Satoshi didn’t invent blockchain, but rather combined blockchain and this Proof-of-Work system to make this peer-to-peer cash transfer possible.
Proof-of-Work is one way of doing this. Ethereum, on the other hand, works based on the Proof-of-Stake consensus. The probability of validating a new block is determined by the validator’s staking amount in compensation for a network fee.
If you’re feeling a little lost now, it’s totally fine! We’ll dive deeper into the different types of crypto networks, tokens, and their unique benefits in Module 3.
This is a very high-level overview of blockchains, and why is it exciting?
It’s because of its implications and the possibilities being unlocked: direct exchange of value, Decentralized Finance (DeFi), digital collectibles and assets (NFT), Decentralized Autonomous Organizations (DAO)….
To start owning your digital data and currencies, you will of course need a wallet for all these assets.
Continue to the next course, where you’ll finish with creating your first crypto wallet!