Aug 09, 2021

Blockchain Tutorial: A Beginner's Guide to Distributed Ledger Technology

By: Algorand

You’ve probably heard people saying blockchain technology is going to change the world. But what exactly is it, and how is it going to change the world? 

This blockchain tutorial is designed to put you on the road to becoming an expert on blockchain and distributed ledger technology as quickly as possible.

The Origin of Blockchain Technology

Blockchain technology was first developed by a pseudonymous developer, using the name Satoshi Nakamoto, when he created the world’s first decentralized digital currency, Bitcoin. 

Unlike traditional digital payments that required an intermediary like a bank or a payments provider, Bitcoin made it possible for two people to send money directly to each other from anywhere in the world. This may seem like a minor difference, but it has huge implications for our lives. 

Before we consider the impact blockchain will have, let’s consider what they are and how they work.

What is Blockchain?

Blockchain may sound exciting because of all the hype surrounding it, but in reality, a blockchain is just a new method of record keeping. The blockchain is a type of ledger, but it’s spread over a distributed network of computers— hence the term distributed ledger.

The most important difference between traditional record-keeping and blockchains is that blockchains are open. For example, in the past, you had to trust banks to keep accurate records about how much money was in everyone’s account. 

Blockchains enable full transparency by using cryptography— hence the term cryptocurrency. This is actually a big deal because it means you can keep track of financial records without needing to trust anyone. In this way, blockchains can massively cut down on paperwork and fraud. 

In addition to financial use cases, blockchains can be used to record any type of data in a secure, immutable, and transparent manner, opening up a world of possibilities for companies to leverage this innovative new technology. 

How Do Blockchains Work?

To understand how blockchains work, you have to understand what they are made out of. 

  • Addresses. A blockchain address is an entry in a blockchain that contains data. You could view this as sort of like an email address, but instead of sending and receiving text, you send and receive value. To send value, you need a private key, which is kind of like an email password.
  • Private Keys. A private key is a cryptographic code that makes it possible to prove that you are the owner of an address. Complex math makes it possible to prove this without your private key being verified by anyone.
  • Hash Functions. A hash function is a mathematical equation that combines multiple strings of data into a single, short code.
  • Transactions. When you want to send value from your address, you “sign” a transaction with your private key. A hash function combines the transaction data with your private key to generate a Transaction ID
  • Blocks. A block is a group of transactions from different addresses that is bundled together. These transactions can be collected from anywhere in the world. When the transactions are all correct, they are “published” to the blockchain. Some blockchains will add a new block every 10 minutes, while others add blocks every few seconds.
  • Block headers. A block header is a code that identifies a block. Each block header is formed by using a hash function to combine all of the transaction IDs in a block with the block header of the last block added. The previous block header and all of the new transaction IDs must be correct for the new block to be accepted. This is how the blocks are “chained” together. Hence, the term blockchain.
  • Nodes. Multiple network participants “compete” to earn rewards by adding blocks to the blockchain. They keep copies of the blockchain on computers called “nodes.” These nodes form a decentralized network, which makes it very difficult to try to change the blockchain because you would have to simultaneously modify every single node at the same time.

This may seem difficult to understand at first, and that’s okay. The important thing to understand is that information can be saved in such a way that everyone can see how much value or what type of data is on an address, but only the owner of the private key can send it.

The Evolution of Blockchain

The first blockchains, like Bitcoin, were only used for keeping track of how much money someone had. Pretty soon, however, people realized you could keep any kind of information on an address; text, photos, or even computer programs. 

This caused a surge in interest in the concept of smart contracts. A smart contract is a program that automatically transfers value when certain conditions are filled.

For example, consider buying a house. A smart contract on the Algorand network could say, “If the buyer gives the seller $500,000, then the seller gives the buyer the title to the house.” The title to a house can be digitized and given to a smart contract by a seller. Then, when the buyer sends $500,000 to the contract, the smart contract sends the title to the buyer and sends the funds to the seller.

This eliminates the need for a lot of intermediaries and paperwork that used to be necessary to establish trust between a buyer and a seller. This can be applied to all kinds of legal documents and contracts, including loans, business deals, and even marriage and divorce. 

Decentralized Applications (dApps)

More complex combinations of smart contracts can be used to make decentralized applications, also known as dApps. 

Think about it — some of the most famous apps deal with contracts. Uber, for example, makes contracts between people with a car and people who need a ride. AirBnB makes contracts between people who have a place to stay and people who need a place to stay. 

Centralized platforms like Uber and AirBnB charge a fee for securely processing payments between users. With smart contracts, users can transact directly with each other, making it possible to reduce fees.

While most dApps so far deal mainly with trading digital asset trading, there is a lot of potential as more real-world goods and services are tokenized on blockchains, making the exchange of value in the digital realm easier than ever before. 

Why Are There So Many Blockchain Career Opportunities?

Blockchain makes productivity gains possible in all kinds of industries. Blockchain-based applications are disrupting many established business models, and major corporations are trying to keep up with adopting blockchain technology as quickly as possible. 

This has led to a huge demand for employees who understand and are able to work with blockchains— blockchain developers in particular. However, there are many work opportunities for people from all backgrounds to work in the blockchain industry.

Algorand makes it especially easy to get started as a blockchain developer by providing easy-to-use tools for dApp development. There are also free tutorials that even complete beginners can use to learn how to build their own dApps. 

Building some basic dApps on Algorand is something you can include on your resume that could give you a serious edge. 

The Future of Blockchain

No one knows exactly what the future of blockchain technology will look like, but at the moment, it looks very bright. The number of applications of distributed ledgers is huge, with new uses being discovered all the time. 

With all of these possibilities, there’s also a ton of potential. That means you can have a hand in determining what the future of blockchain technology will look like. 

Get Ready for the Future. Learn more about Algorand.