Types of Blockchain | Jack Saba

Is there a reason for this, like, the competition ecosystem?

Yeah, so you would not need to do this if you were using traditional finance, where people have who you are, your bank account information, all these different things, but then you go back to that process of reconciliation and transferring value. So the blockchain, and Bitcoin in particular, provides for somewhat of anonymity. So we don't know each other, but we are still able to transact. So what happens is, in order to maintain that level of anonymity, these computers are competing to add blocks, and if they add the block, then they're rewarded with an economic incentive.

I was just going to ask, do they get any value for adding the block?

Yeah, so right now, every time the individual adds a block, they receive 12.5 Bitcoins in return. So it takes— it's called proof of work. So what you're doing is you're putting in work guessing these, uh, the number that will add it to, and then once you add it, you are rewarded for it, and now the transactions are a part of the history. You're rewarded for it, and you can sell the Bitcoins back.

Is this— is that how Bitcoin kind of gathers its value?

Yeah. So Bitcoin is really interesting because it is strictly supply and demand. The value of the currency is strictly supply and demand. There will only ever be 21 million Bitcoins that are released in this way. So around every 10 minutes, a new block is added, 12.5 are released, and at some point that will be halved again. It used to be 50 Bitcoins reward, and then 25 Bitcoin reward, and then 12.5 Bitcoin reward. And it'll continue to halve until about 2100, when the 21st million Bitcoin will be mined. And at that point, it's strictly supply and demand, and that's where the value comes from.

Awesome. So I know that there are— there's the blockchain that Bitcoin is built on, but I understand that there are not— that's not the only blockchain that's out there. There are more than one blockchain. So how do these different blockchains interact and And what are they?

Yeah, so there are thousands of blockchains, and Bitcoin is the biggest blockchain, and it's a public blockchain.

So Bitcoin, is that the brand name, and then underneath it is a certain blockchain?

You could think of it that way. Bitcoin is the currency that's being used, and what facilitates it is its blockchain. When the Bitcoin blockchain was developed, It was very rigid and hard to work with, and that was intentional. But it's open source. So what happens is you have these things called sidechains. And so people take the open source protocol of Bitcoin and they copy it, they create some new rules, and new people operate that network. And then the information is gathered and validated the same way, or in similar ways, unless they change some of the rules. And then certain hashes are hashed to the Bitcoin blockchain. Because for security reasons.

So if I wanted to become a node on the Bitcoin blockchain, how would I download it and get that blockchain?

You would, as an individual that wanted to work with the Bitcoin blockchain or use Bitcoins, you would download a wallet and that would enable you to work and transfer value, etc. If you wanted to be a node, it's a bit more complicated and it's not necessarily In the early days, the ways that you derived value was through mining.

Uh-huh.

And then it was through arbitrage of different exchanges where you would buy from one, sell on another. But now it is not necessarily economically feasible or in your best interest to try to operate a node validating the network because it's just really expensive. So you can load your computer to mining pools, so you can kind of come together with groups of computers that are trying to guess at the same time, and if that pool accesses, or provides, if that pool adds a node, if that pool adds a block to the blockchain, then the whole group is rewarded. So it's a little different than what it used to be.

So getting back to it, there's different chains out there. I guess, like, how do you get involved in each chain, or which one's good, which one's bad, like, what are the leaders?

It's hard to say what's good and bad because the value of a chain is derived by its utility. So each blockchain kind of does something a little different, and each one solves a different problem to some degree.

Okay.

But there are 3 types of blockchains. There's public, permissioned, and private. And there are 4 fundamental principles of the blockchain, which are anonymity, transparency, efficiency, and immutability.

Those are like the 4 laws of the blockchain?

Yeah, essentially. Like the 4 pillars. Like the 4 pillars. Like what really gives it its value.

And what were they again?

Efficiency, immutability, transparency, and anonymity. So each blockchain, each type of blockchain, whether it be public permissioned or private, places a different premium on those 4 values. Additionally, the terms public permissioned and private relate to who can operate the network. So Bitcoin is a public network where anybody can be a validator and anyone can be a user. A permissioned blockchain is one in which the nodes in the network are known entities, and only people that have the ability to interact with that known entity would be able to operate on the network. So an example of that would be the financial institutions. Once they come around to releasing what they're working on and really using this technology to their advantage, they're going to be a permissioned blockchain. And so you will know who are the validators, and you would have to work with that institution in order to do it. Another use case would be healthcare, for them, example. A private blockchain is one in which one entity owns the network and you have to be known to them in order to operate, in order to use it. So a use case for that would be a large corporation that has many different business silos and where a customer may exist in a few of those silos. So this would be a way for them to link their databases and create one succinct record of who you are as an individual across their businesses. So one entity running the network internally for their companies would be an example of a private blockchain.