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A blockchain is a digital version of an accounting book (or a ledger) that keeps a record of transactions and numbers.

It’s like a bank statement that shows all of your banking activity including purchases and transfers.

On some blockchains, anyone is able to see what transactions are being made and where money is being sent. But the identities of those users making the transactions are kept anonymous, and only the amounts and wallet address of each transfer can be seen.

In a later lesson, we’ll go through how they work and how the blockchain’s information stays genuine and distributed.

Basics of the Blockchain

Let’s visualize the blockchain through an example that might be a little more familiar. 

Say you want some chocolate, so you create a list and ask your neighbor to go shopping for you. Perhaps you want some chips too. 

But your neighbor is all about healthy eating. As she reads your list, she decides to change every single thing you asked for. Instead of chocolates, you get walnuts and cashews. Instead of a bag of chips, you get a watermelon.

![Shopping list](https://wow-studio-foundation-cms-staging-public.s3.amazonaws.com/list_01e271d656.svg)

Hmm… there goes all that food you had in mind, eh?

Well, on the blockchain, you wouldn’t have to worry about anyone messing with your list, because no one can ‘change’ your transactions. 

In this example, we’ll call our blockchain, ‘Hangryhub.’ It's where angry people go if they are hungry. 

It connects people from all around the world, and everyone who is a part of Hangryhub can see what everyone else is craving. They can monitor the network but can't see who's behind the food requests or cravings, only a unique combination of numbers and letters.

This combination ensures anonymity to keep your identity safe and secure. 

With your unique combination, you can now send a request to the store for anything you want.

This request is now seen by everyone connected to Hangryhub.

But don't worry, this is actually a good thing! With everyone able to see the request, it ensures transparency and prevents anyone from tampering with it without your knowledge.

So if someone else (who has a different unique combination) tries to edit your shopping list, it won’t work.

### Hoorah!

Compare our imaginary Hangryhub blockchain to a similar structure today: Uber Eats, Amazon Food, Gojek, or Meituan Waimai.

These are some of the biggest food delivery companies on the planet.

On these platforms, ownership of data is fully owned and controlled by them. These tech giants operate through a centralized system where one body holds all the records and data of the actors within the system. 

They can see all the requests you make, where you order from, what time you order, and how you pay for it.

Your habits and preferences can be (and sometimes are) sold to other companies by these food platforms. You have no ownership over your own data in this situation. 

This is also the case if they get hacked or compromised; everyone's data in the system will be at risk, which can lead to misuse of your data.

What’s most scary is the power these platforms can hold.

If you don’t follow their rules or adhere to their guidelines, they can ban you or stop you from making requests. No more chocolate for you. 🙁

Once you upload a request, these companies now have the power to either allow the request to be fulfilled or reject it. This is one way blockchain changes our relationship with our own data. 

An Example

With blockchain technology,  you have complete ownership and control over your data because it is distributed across thousands of computers rather than a single entity.

Blockchains work through something called a ‘node’, which is basically a device (like a laptop or server) that checks to see if transactions are real and valid. 

These nodes connect to form a network without any central authority through a P2P (Peer-to-Peer) system.

![Peer to Peer](https://wow-studio-foundation-cms-staging-public.s3.amazonaws.com/P2_P_67979a8d17.png)

To understand how this works, let's use an example to help you visualize this. If Alice wants to send Bob $10, she can do so through her bank, and the money will pass through her bank before reaching Bob’s account.

But if Alice chooses to use the blockchain, the process is different. Her money will move through the network of nodes instead of a centralized bank. This means that no one person or organization can control her money or prevent her from transferring it.

Each node acts independently and stores a copy of every transaction made. But you may wonder, how do we prevent others from editing or altering past transactions? 

This is where consensus mechanisms come to play. Each blockchain has a unique system that ensures that past transactions cannot be changed and new transactions are legitimate. We’ll talk more about this in a later lesson.

Now, back to nodes from a security perspective. 

If one node is compromised or hacked, it will not affect the other nodes in the network. Unlike centralized systems used by most companies, each node can flag any unsolicited activity attempting to tamper with the original transaction. The blockchain’s transparency allows for public verification by any actor in the system. 


How the Blockchain Works

Why is the blockchain important? And why should you care?

Blockchains help us trust digital transactions and trade digital assets without needing someone else, like a third party, to oversee it. It matters because it lets us create a system where we do not have to worry about third-parties. 

It is a way to interact directly with each other without needing a middleman or someone else for permission or approval. 

Think about sending money abroad. Usually, you would have to go to a bank or an exchange office to have this done for you. It can cost money and take hours, if not days, to process a transfer. 

Well, on the blockchain, you can send money to anyone around the world with minimal transaction fees at any time of day.

The information written on a blockchain is immutable, which means it cannot be changed or removed once it is written on the database. This permanence and reliability of digital data allow for secure trading in a digital environment.

There are also different types of blockchains, each supporting different types of digital assets. Some only support cryptocurrencies, while others include smart contracts that allow the trading of other digital assets like a photo of a giraffe, Madonna’s new music album, the deed of a house, or even a WoW NFT. 

To trade and own digital assets, you need a digital wallet. In most cases, setting this up usually takes less than a minute. In another chapter, we’ll guide you through setting up a digital wallet, while addressing the importance of digital wallets, their functions, and some security cautions.

For now, we’ll cover the basic process of trading digital assets. It gets a bit technical from here, but don’t worry. You don't need to know all of this information to manage your crypto assets. It’ll just help having a basic understanding of what’s going on so you can make more informed decisions. 

Digital assets are registered on the blockchain using a method called public key cryptography, which is basically a method of protecting information through the use of codes. This involves two types of hexadecimal numbers:

- A public key, which is openly available to anyone in the system.
- A private key, which is kept secret by the owner and account holder.

You can think of the public key as your “bank account number,” which you can share with anyone like friends or family. 

Your private key, on the other hand, should be treated like a password or pin code. It can give anyone access to all the funds in your account, so as a rule of thumb, never share your private key with anyone – even someone you know well.

All this allows two communicating parties to send data to each other – encrypted by the sender and decrypted by the receiver. Encrypted data with the public key will only be able to be decrypted with the private key, and vice versa.

![encrypt.png](https://wow-studio-foundation-cms-staging-public.s3.amazonaws.com/encrypt_5ba736fc20.png)

By the way, hexadecimal numbers can look something like this: **0xc9dd164c0083de367c6c4adbba785b70bede6432719504c149df68c6671mi8dX.**

That may look quite complicated, but remember, as a user you only need to keep this code safe like you would with any of your passwords. But do not screenshot, share or take a picture of it. 

Write it on a piece of paper or book instead 📝

Now that you’ve got the basics in mind, we’re going to give a brief introduction to two of the biggest (by market capitalization) cryptocurrencies: Bitcoin and Ethereum.

### Bitcoin

Bitcoin (BTC) is a digital currency that operates on the Bitcoin blockchain. Bitcoin is considered by some to be a store of value as it is designed as an alternative to traditional currencies. Many often see it as digital gold because it is scarce – only 21 million bitcoin will ever exist. 

### Ethereum

Ether (ETH) is the native digital currency of the Ethereum blockchain. Ethereum allows for ‘decentralized applications’ (dApps) or ‘non-fungible tokens’ (NFTs) to be built/created on top of it. 

We’ll learn more in later chapters as both BTC and ETH are commonly used today but for now, know that blockchain are an easier way to do transactions, reducing time to recipent, incresingy transperency and often reducing fees as well. 



Why it Matters: Blockchain Use Cases

As we talked about earlier, consensus mechanisms are used in different blockchain networks to ensure that transactions are authentic, valid, and secure. These protocols are pretty important to maintain trust and make the network a reliable place to transact.

We’ll cover two types of consensus mechanisms here that are used to facilitate trust in a decentralized network: proof-of-work (PoW) and proof-of-stake (PoS). 

The PoW consensus algorithm requires miners (nodes) to solve complex cryptographic puzzles to validate a transaction.

In this model, miners compete with each other to find the answer to a mathematical puzzle, known as a hash. The first to solve the hash is rewarded with the blockchain’s native currency. Bitcoin is a good example of a blockchain that uses the PoW blockchain.

Computational power is king in a PoW consensus model. But the issue is that miners start pushing their computers to their limits in order to receive the reward. This competition increases energy consumption and generates a lot more heat.

However, in a PoS model, that power comes from holding more of the native currency of the blockchain. Users can ‘stake’ the native cryptocurrency of the blockchain to validate transactions. Staking involves “locking in” your digital assets for a defined period of time in return for rewards.

Staking incentivizes participants of a blockchain to behave honestly, since they have a financial stake in the network’s success. If they validate fraudulent transactions or try to manipulate the network in any way, their stake is at risk. 

Indeed, miners are not needed which is why the PoS model is considered to be much more environmentally friendly than PoW. Ethereum was a PoW blockchain, and it moved to PoS in September 2022.

Extra: Security and Blockchain

What is the blockchain.svg

What is the Blockchain? 

Wait, what’s web3? 

A <a class="glossary-term" data-tooltip-id="term-8">blockchain</a> is a digital version of an accounting book (or a ledger) that keeps a record of transactions and numbers.
It’s like a bank statement that shows all of your banking activity including purchases and transfers.
On some blockchains, anyone is able to see what transactions are being made and where money is being sent. But the identities of those users making the transactions are kept anonymous, and only the amounts and <a class="glossary-term" data-tooltip-id="term-101">wallet</a> address of each transfer can be seen.
In a later lesson, we’ll go through how they work and how the blockchain’s information stays genuine and distributed.

A blockchain is a digital version of an accounting book (or a ledger) that keeps a record of transactions and numbers.

It’s like a bank statement that shows...

Basics of the Blockchain

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Basics of the Blockchain

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