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Primer: How Blockchains Work

Emilie Choi breaks down the basics of blockchain technology in this quick, animated lesson and explains how it can create a more open, accessible financial model.

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[MUSIC PLAYING] WOMAN: Imagine trying to explain a bank account to your friend but starting the explanation with the Fed wire system, ACH payments, and clearinghouses. That's how people are explaining blockchains today, and it's no wonder it sounds complicated. The reality is that blockchains are very simple. Just like you can simply explain a bank account in one sentence, the same is possible with blockchains. At the most basic level, a blockchain is a list of transactions that anyone can view and verify. The Bitcoin blockchain, for example, has a record of every time someone sent or received a Bitcoin. Chase, PayPal, Cash App, and other financial payment providers maintain their own databases to keep track of user accounts and how many dollars are in those accounts. All a blockchain is is a shared database that anyone can see and use. If you have an account with Cash App, you can send money to other Cash App users. But if you have an account on a blockchain, you can send money directly to anyone in the world, any time, instantaneously with minimal fees and no intermediaries. Blockchains are the epitome of financial inclusion. Blockchains are often compared to the internet, but it's uncanny how close the resemblance actually is. The first form of the internet was invented in 1969. And for the next 20 years, we had company or region-specific closed permissioned networks. It wasn't until 1989 that the open, permissionless version of the internet, termed world wide web, was created. Just imagine if you had to use Microsoft internet, Amazon internet, or Walmart internet. Wouldn't that be crazy? But that's where we are today with financial services. Blockchains are doing to finance what the world wide web did to the internet by making it global, permissionless, and accessible. So how does a blockchain actually work? Picture a chain attached to a ship's anchor. In this case, every link on the chain is a chunk of information that contains transaction data. At the top of the chain, you see what happened today. And as you move down the chain, you see older and older transactions. If you follow the chain all the way down to the anchor, you'll have seen every single transaction in the history of that cryptocurrency. This gives the blockchain powerful security advantages. It's an open, transparent record of a cryptocurrency's entire history. If anyone tries to manipulate a transaction, it will cause the link to break, and the entire network will see what happened. [MUSIC PLAYING] Crypto is trustless, meaning you don't have to trust an institution like a bank to know that a transaction went through or that you actually hold the assets you think you do. You can trust the technology. Unlike banks, where a single entity is responsible for keeping user assets safe, blockchains such as Bitcoin and Ethereum have tens or even hundreds of thousands of participants working together to keep the blockchain secure. The security model is simpl...

About the Instructor

Since Bitcoin’s launch in 2009, crypto has offered the hope of a stronger, more democratic financial system. And it’s raised plenty of questions as it continues to evolve. Now experts and skeptics at the center of the conversation are sharing a straightforward look at how this ecosystem is changing. Learn the basics, dive deep into the world of blockchain and Web3, and get the breakdown on what you need to know now.

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