With the ever-changing world of cryptocurrency and people spending egregious amounts on NFTs, it is likely that you have encountered the term blockchain before. Whether it was a word you read skimming the latest article about crypto or a term your nephew kept referencing when he tried to give you a simplified version of cryptocurrency, understanding what a blockchain is is a prerequisite for understanding how cryptocurrency works. Trying to figure out how cryptocurrency works without understanding how the blockchain works is like trying to figure out what is going on in a football game without knowing what the line of scrimmage is — it is key to understand the fundamental principles if you want to know how to get involved.
To start in general, a blockchain is a type of computer coding made up of blocks of data. Every time that a new block is created, it is added on top of the existing blocks, tracing all the way back to the original block. Once a block has been added to the blockchain, it can never be taken out; the blockchain is continuously building on itself.
One of the key concepts that helps to make a blockchain secure is that it is decentralized and the data in the set is accessible to all. While the iconic Mission Impossible scene when Tom Cruise dangles from the ceiling looking to get into the master computer is somewhat of a relic of the past — with a blockchain, there is no one computer or password that controls all of the data. Instead, there are many people constantly “mining,”or checking the code to make sure that the blockchain is correct. Because the data is available and the same for everyone, people are able to identify areas other people tried to switch, which gives the chain its security.
Now, you may be wondering, besides these more abstract ideas such as cryptocurrency and NFTs, why should I care about the blockchain? Part of the reason you should care about the blockchain is that many people believe, for better or for worse, that it is the future of the internet and bookkeeping. Because these chains become more secure and reputable as more people join them, those bullish on the blockchain believe that it is only a matter of time before Bitcoin is used for practically everything. Others, like the author of this opinion piece for Bloomberg, acknowledge that blockchain is useful, but that it will take adjusting to, similar to the early days of the internet.
One of the main gripes with the blockchain is its environmental impact. The mining process described above that verifies that the code is correct needs fast computers running continuously, in turn, requiring large amounts of energy. To give a sense of perspective, Bitcoin’s electricity usage is higher than that of Argentina’s! There is no denying that Bitcoin uses immense amounts of energy; however, the two perspectives both have valid points. People upset with Bitcoin’s energy usage feel that miners using energy for Bitcoin is a poor use of our scarce resources, while those who are defenders believe that they are doing a better job of using renewable energy compared to other industries. It will be interesting to see how the environmental consequences of blockchain technology are handled moving forward considering how prevalent many believe it will become in our daily lives.
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