What is the Blockchain?
How does it work?

But mostly, why are blockchain developers paid $140k/year on average?

A mega-thread on web3.0 and how the Blockchain might shape the future ↓
The Beginning

In 2008 Satoshi Nakamoto Published:
"Bitcoin: A Peer-to-Peer Electronic Cash System"

- The reversibility and trustability issues.
- Bitcoin, a p2p version of electronic cash (not blockchain).
- The mechanics of Consensus.

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What was the blockchain?

The blockchain was only a special type of shared, and secured database, not owned by any entity, used to run the Bitcoin.

A cryptographed and autoregulated collection of transaction data, validated and stored on a network of computers.

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The Blockchain Today:

The blockchain today is a much larger concept, that ranges from Distributed Cloud Computing to, of course, Cryptovalues and NFTs.

In this thread, I'll give you a 360° overview of what is the Blockchain.

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Why Is the Blockchain Important?

Humans have this huge problem called: trustability.

Everything in our society orbits around ways to ensure trust between two or more parts.

Simply put: Blockchain solves the problem of trustability, decentralizing it.

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How do we ensure trustability?

We use the most disparate methods:
- Contracts.
- Reviews.
- Stars.
- Scores.

All of those trustability proofs are then signed by centralized entities such as governments, companies, or organizations, to ensure validity.

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What does Centralization mean?

The concentration of control of activity under a single authority.

All trust proofs are stored and signed by single entities, in closed databases around the globe

This causes huge frictions derived from data validation & handling.

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Why is giving data to centralized institutions bad?
Centralization is not bad, is obsolete.

There are several reasons:
- High costs.
- Traceability.
- Speed.

Let's go through those and understand how the blockchain addresses those concerns.

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Centralization and higher costs:

This comes with the problem of reversibility or "the middle man" as described by Satoshi Nakamoto.

If something is reversible -> requires intermediaries and Intermediaries are expensive.

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Centralizations and traceability:

Having a private database makes it hard for companies, users, governments to keep track of the validity of data, and share data consistently.

This creates frictions derived from the processes to validate the information.

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Centralized institutions are slow:

This is because intermediaries have to verify the validity of data, through cumbersome processes.

Think about starting a mortgage, or opening a company, or simply renting a car, this takes a considerable amount of time.

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How can we solve centralization's issues?

Removing intermediaries, creating trust via a set of tampering proof, irreversible, automated, and distributed technology-driven processes.

Also called:
The Blockchain.

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What is the Blockchain?

The blockchain is a distributed network of nodes, that are sharing a public database, containing cryptographed data and information about the transaction of that data.

Think about it like a huge open database, hosted on multiple computers.

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How does the blockchain works?

The blockchain is comprised of:
- Nodes, where copies of the blockchain are stored.
- Blocks to store and secure data.
- Consensus and Proof of Work.

Let's see how they work.

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What are blockchain nodes?
Nodes are where the blockchain resides.

Every system connected to the blockchain is considered a node and shares an identical copy of the blockchain with all other nodes.

Nodes constantly exchange data to keep themself up-to-date.

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What are blockchain nodes responsible for?

- Blocks validation.
- Transaction processing.

Nodes serve the required CPU power to maintain the blockchain and validate transactions.

Trust me, the blockchain is greedy.

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What Are Blockchain Blocks?

A Blockchain is a chain of blocks that contain information. The data which is stored inside a block depends on the type of blockchain.

A Bitcoin block contains information about Sender, Receiver, number of Bitcoins to be transferred.

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How Does a Blockchain Block Look Like?

Every block has:
- Data.
- Individual Hash.
- Hash of the previous block (parent hash).

The first block (Genesis Block) is the only one without a parent hash.

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Why are Blockchain Blocks Secure?

Every block in the blockchain has a unique SHA256 HASH that identifies its content, shared with the subsequent block.

If you change the hash, this will not correspond anymore to his children's parent hash, invalidating the block.

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The Consensus Mechanism.

A consensus mechanism refers to any number of methodologies used to achieve agreement, trust, and security across a decentralized computer network.

The most popular blockchain is Proof Of Work (PoW).

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Proof of Work - Blockchain

Proof of Work (PoW) is the mechanism that allows decentralized networks to come to a consensus, or agree on things like account balances or a block to be modified.

A computational problem sets the difficulty for the work miners do.

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Proof-of-work - In the blockchain

Every time a new node needs to be added or modified to the blockchain, a computational problem is served and the first CPU to solve it validates the block.

This is what miners, active nodes in the blockchain, do.

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How Miners Demonstrate Proof of Work?

Miners guess a nonce (number used once), via billions of trials and error, heavily relying on CPU.

Once a node resolves the nonce, it broadcasts the result to the other nodes, and a new block is appended to the blockchain.

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Proof of Work is Like a Lottery:
a guessing job where the miner's CPU needs to choose a number.

The difficulty is based on the total amount of blocks/time/nodes.

Each CPU has only a limited chance to be the "winner", creating an unprecedented equal distribution.

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The Blockchain is a Decentralized Network

Blockchains use a distributed peer-to-peer network, where, when public, everyone can join.

When someone enters the network he/she gets a full copy of the blockchain, forming a node.

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Network Consensus

Because all the nodes in a blockchain share the same copy, everyone is responsible for data validation.

Every time a node enters the blockchain, the whole network needs to verify the node transaction history and hashes, forming consensus.

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Why the Blockchain Consumes so Much Energy?

Because Proof of Work is CPU intensive.

Satoshi Nakamoto clearly explains that the costs in the blockchain are shifted from Money to Electricity and CPU power.

With a huge environmental impact.

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Security and Privacy in the Blockchain.

The enhanced security offered by blockchain stems from how the technology works:

Blockchain creates an unalterable record of cryptographed transactions with e2e encryption, which shuts out fraud and unauthorized activity.

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Traceability in the Blockchain.

Walmart uses the blockchain to trace the origin of mangoes.

Every node contains its transaction history, with data cryptographed on demand, creating a shared irreversible open ledger, freely consultable by the nodes on the network.

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Blockchain Is Not Fast (yet).

Unfortunately, even if the technology is promising and could become lightning-fast, Blockchain is still pretty slow.

Proof Of Work, and the need for every node to validate each transaction, slows down the process tremendously.

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How Slow a Blockchain Is?

- The Bitcoin Blockchain caps at 7 transactions/second.
- The Ethereum Blockchain caps at 14 transactions/second.
- A credit card network caps at 25.000 transactions/second.

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So How Does the Blockchain Solve Trustability issues?

- Creating a distributed database.
- That lives on a decentralized network of computers.
- Autoregulated by consensus.

Removing the need for an intermediary, while keeping data free from any owner.

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The Different Stages Of the Blockchain

As said before the blockchain today is a much larger concept, that goes from Distributed Cloud Computing to, NFTs.

We can divide Blockchain's journey in:
- Blockchain 1.0.
- Blockchain 2.0.
- Blockchain 3.0.

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Blockchain 1.0: Currency

The implementation of the distributed ledger technology led to its first and obvious application: cryptocurrencies. This allows financial transactions based on blockchain technology.

Bitcoin is the most prominent example.

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Blockchain 2.0: Smart Contracts

Smart Contracts are small computer programs that “live” in the blockchain.

Used as contract replacement, Smart Contracts execute automatically and check conditions defined earlier like facilitation, verification, or enforcement.

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Blockchain 3.0: DApps

DApps is an abbreviation of decentralized applications, having their backend code running on a decentralized p2p network.

A DApp can have a frontend written in any language that can make a request to its backend, like a traditional web app.

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Blockchain Developer Salary.

The use cases of the blockchain range from decentralized storage to Real-time IoT applications and Personal Identity security.

This, plus the lack of blockchain developers, make salaries skyrocket to $140k/year on average, rising.

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The Limitations of The Blockchain

The blockchain is still at an early stage though, full of limitations, but expanding at an impressive rate.

Here's a cheat sheet with all the current limitations of the Blockchain.

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Even if the Blockchain is still a proof of concept, it already runs thousands of decentralized applications and millions of users.

A market of $1.5 trillion, eager for developers, making it one of the most in-demand skills in the tech industry

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Thank you for reading!

I'm Vitto 👋
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