The Blockchain is a distributed ledger technology (DLT) that chronologically and publically records all bitcoin transactions. When I say ‘bitcoin transactions’, I do not only mean transactions that involve use of Bitcoin, but also any transaction that is conducted on the Bitcoin Blockchain network. Of course the transactions also include those in other Blockchains such as Ethereum Blockchain which uses Ether. These transactions could be legal transactions, business transactions, health transactions, insurance transactions and other data-based transactions.
The digital ledger is publicly held and updated by everyone who participates in maintaining the network. These participants are known as nodes or those we commonly refer to as miners. Not miners who mine gold or silver, but miners who use their computing power to approve or validate transactions on the Blockchain network real-time. Their computing power depends a lot on Central Processing Unit (CPU) power, the mining hardware and the amount of energy at their disposal. The process of mining consumes a lot of energy and is an expensive affair. If you would want to venture into Bitcoin mining, you might want to research further before taking the risk. Your choice of the mining hardware is especially vital as they vary in electrical efficiency and price per hash. For instance, AntMiner S7, AntMiner S9 and the Avalon 6 are considered to be the most efficient in the market at the time of writing this book. The hardware can be purchased from Amazon. I am not an investment adviser but I can tell you that mining cryptocurrencies especially Bitcoin involves high risk thus return on investment may not be guaranteed. Additionally, it may require high initial investment compared to other possible investments with similar returns. However, it is possible to join a pool of miners and ride on their high computing power and performance efficiency.
Unlike in many ledgers where there is a centralized authority that controls the validation of transactions, in the Blockchain network, transactions are validated in a decentralized manner thus the name decentralized peer-to-peer network. Let me make this clear, all distributed ledgers are also decentralized ledgers but not all decentralized ledgers are distributed ledgers. In this section I will refer to Blockchain more as a decentralized ledger as I compare it with centralized ledgers or systems for purposes of better understanding; but actually Blockchain is both decentralized and distributed. Later on, I will clearly differentiate the centralized, decentralized and distributed systems. In centralized systems, power and authority are centralized while in decentralized systems power and authority are decentralized. In simple terms, in traditional ledgers, a central administrator is positioned somewhere in an office behind a computer and approves or disapproves transactions that are entered into the general ledger. All authority rests with him. In Blockchain, authority for validation of transactions does not rest with one individual; rather it is distributed across the network to millions of nodes who are independent.
By Benjamin Arunda
Author of Understanding the Blockchain
(This article is an excerpt from Understanding the Blockchain by Benjamin Arunda)