What is Blockchain?

Blockchain is the underlying code that provides cryptocurrency with its functionality.

Now let me give you an idea of how that code works.

If you have an account balance of $200 and you have spent $300, which of the transactions are valid?

For centralised solutions, the problem is easy. What time or order did the transactions come in? Then just give the transactions a transaction number. Problem solved! Earlier transactions were subjected to a remaining balance. Once there is no more balance or all spending transactions exceed the balance total, the remaining transactions become invalid.

Why can’t this be done on the blockchain?

The first problem is that all nodes have different times and they can’t correct this without calling a central authority to give them the correct time. The second problem is very similar, there is no central authority for the numbering so transactions will end up with multiple transactions using the same number.

Blockchain solves these problems with blocks.

Let’s say as a node I put all my transactions in a box (this represents a block on the blockchain).

The block is just a group of transactions that total 1MB or at least they were before SegWit.

SegWit allows the separation of the transaction data from the signature (and the signature script). A common misconception is that the signature is then stored somewhere else. In fact, signatures and transactions are only stored on nodes that have been updated with SegWit. Nodes that have not been updated store only the transaction data.

Blocks also contain a hash pointer that points to the previous block, this creates a chain and makes an ordering system for the transactions. One final thing that needs to be put in a block is called a nonce and that is just a fancy name for a random number.

Finally, to secure everything inside the block, a hash function is used. It’s a unique code for everything in the block, so no other nodes can change what is inside.

When the number the hash function produces falls within the correct range the block is accepted as part of the blockchain and nodes start to point to it! This process occurs every 10 minutes on the Bitcoin blockchain. As nodes come and go from the network the difficulty level or hash range changes to ensure that it always takes approximately 10 minutes for 1 node out of the entire network to guess the nonce. Of course sometimes 2 nodes get the correct nonce at the same time. In this case, nodes point to the one they heard about first provided it is the longest chain.

And that is it! That is how the blockchain works. It is a whole bunch of computers essentially playing guess the number to win Bitcoins and have their blocks submitted!!

If there is a topic you would like me to discuss in this crypto vlog, just make a comment on the video and suggest it!

Crypto Mistakes Every Beginner Makes

Make a mistake in crypto and you can lose everything! During the past 5 years, I’ve seen even experienced crypto users lose thousands of dollars from simple mistakes. One user sent thousands of dollars’ worth of a cryptocurrency called Ether to his Ethereum classic address. This mistake resulted in the destruction of all of his coins that he sent with no way to recover them or reverse the transaction.

Avoid these mistakes!

Here are the top 5 mistakes that beginners make and how you can avoid them.    

1. Buying crypto with borrowed money or money that you need for something else.

You don’t need to get big. In fact, buying in small volumes allows you to obtain alt coins at a cheaper price. Alt coins will often have low trading volumes, so coming in big just pushes the price up.

 2. Not Looking After the Crypto Yourself.

If you don’t own the private key you don’t own the crypto.

Exchanges are not a suitable place to leave crypto, they get hacked and these cost users millions of dollars.  Leaving your crypto with any third party always involves more risk than managing it on your own.

We have been taught throughout our lives that if you want your money to be safe then you need to deposit it into a bank account. The reverse is true for crypto. 

3. Depositing small amounts of money onto crypto exchanges.

Crypto exchanges can charge large fees for making a withdrawal. Small investors can end up spending a large portion of their investment on withdrawal fees. Make sure you know the withdrawal fees before you deposit!

4. Buying expensive security devices to hold crypto.

There is no point in spending $200 on a security device to hold $200 in crypto. You can store private keys on a normal flash drive. You don’t need the fancy software and a button to increase the security of a drive.

5. Falling for Scams.

 Avoid things like the promise of big or guaranteed returns, real projects talk about a problem they are trying to solve.

Ask yourself why you want to be involved with a coin?

When starting out, only buy coins that are up and running or at least have a minimum viable product that you can look at and test.

Cryptocurrency for Beginners

What is CryptoCurrency?

The best word I can think of to describe cryptocurrency is digital cash. A cryptocurrency transaction is different from an online credit card transaction because the sender cannot reverse the transaction once it is sent and confirmed by the blockchain.

Credit cards can be a nuisance to both businesses and consumers. Chargebacks affect businesses’ ability to operate and make profits. For consumers, millions of their legitimate transactions have declined because of companies adopting overly strict transaction rules. Some consumers face the inconvenience of being verified before being able to conduct transactions.

Cryptocurrency users face none of these issues. In 2018 approximately 290 million people globally owned some form of crypto. Yet only 14,000 businesses globally accept crypto as payment (2018). This is a completely ridiculous business to customer ratio (of more than 20,000 customers for each business that accepts crypto). It is a good thing crypto can be used for a lot more than just shopping.

Crypto can also come in the form of a tokenised asset. Tokenised assets can take very expensive items, such as a new housing development, and break it down into affordable divisible portions. This reduces the barrier to entry for a lot of investors. Returns and dividends on investment can easily be handled by the blockchain by issuing additional tokens to the token holder’s address.      

Fees for crypto transactions are determined by demand, but at the present time these are only a few cents. In times of exponential growth, some of the bigger blockchains can come under pressure and fees go up. This is a scaling issue and all blockchains have been working on solutions to improve performance.   

The advantage of digital cash is that it is completely borderless, meaning it does not matter where the person you are sending the money to lives. Cryptocurrency is much faster than current banking solutions such as drafts, international money transfers, and services like Western Union which take a minimum of 3 days and often longer.

Cryptocurrency decentralises the power of financial resources. For example, not everyone is able to get a bank account, whereas with cryptocurrency anyone can create an account and start making transactions.

To better understand the intentions of cryptocurrency, take a look at the message the creator of Bitcoin, Satoshi Nakamoto, put into the first block. “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.     

By referencing this article Satoshi Nakamoto is really saying that Bitcoin can prevent these types of catastrophes.

The main suggestion from this article is that banks will receive a cash injection from taxpayer dollars. Cryptocurrency is a banking system that is self-governing and does not need government assistance. It is a currency that gives power back to the people.