How does Bitcoin Actually Work? | Blockchain Whiteboard Explanation

We've all heard of the words Bitcoin and Blockchain but how does this technology that seems to be the hype every couple of years actually work?

In this video, we are going to explain what a blockchain is in very basic terms using a monopoly analogy. A Blockchain is a record of transactions that occurred from the inception of the blockchain (the genesis block) up until the most recent blocks.

#Bitcoin is the first asset to successfully use blockchain. As transactions come in, thousands of computers called "Nodes" verify wether the transactions are valid or not and they can do this because they each have a copy of the entire blockchain. Once validated, the transactions enter the mempool where they wait to get confirmed. Specialized computers called Miners work to solve a complex puzzle set by the Bitcoin algorithm in order to confirm transactions.

Once transactions get confirmed, they are included in a block and the block is appended to the blockchain. Each block in the chain is connected to the previous block through cryptographic hashing. If a confirmed transaction tries to get changed, the hash changes and this invalidates the entire blockchain.

There are still very few use cases for this technology. The most popular use case is as payment rails. Other blockchains like #ethereum have deployed smart contracts which have given rise to applications like #defi and #nfts.

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