The Backbone of Cryptocurrencies: Blockchain Technology: Part 1: a sneak peak

Editor’s note: This article is Amaan in his natural habitat. Proceed with caution and some extra IQ points.

The PKR 1000 note in your wallet is under threat. Not by your friends for that treat you promised them but by a system so sophisticated, it might give the banking system a run for its money (sorry not sorry).

Effective solutions are often not the most complex ones; boiling down to first principles, and building up from there often leads to something beautiful. The following paragraphs will aim to explain this concept from a perspective of a peanut-sized brain (my brain); this article is quite an oversimplification – but I guess most people will leave this page learning something.

Blockchain is a word closely associated with Bitcoin, but it’s something way more versatile; this article, however, will primarily look at the mechanism of blockchain technology in regards to cryptocurrencies. 

To explain this term, we need to understand ledgers (a.k.a khaata in Urdu).

A ledger is a copy of all monetary transactions between a group of people, or more formally, on a network. For the sake of simplicity, we’ll consider this ledger to be a single notebook, on which anybody from the group of people can add a transaction (e.g Ali pays Wasay 10$ etc). If you understand how a ledger works, you already know the principles of blockchain.

So, what’s wrong with the ledger?

Well, as you might have guessed, since anybody can add any transaction to the notebook, there needs to be a system through which fraudulent transactions could be mitigated. Here, the idea of a centralised transaction system kicks in: we place our trust in an intermediary (i.e Banks), hoping that the person would be absolutely trustworthy. But, is there a way to make this process transparent and decentralised?

Enter Blockchain Technology!

A Quick Note:

The term Blockchain is typically used alongside cryptocurrencies like Bitcoin. However, bitcoin is just one implementation of this technology. 

Blockchain is exactly what it sounds like: a series of blocks of data (in our case monetary transactions) that are connected – but there’s a little more to it. This series of transactions is available to everyone on the network, so everybody has a copy of all the previous transactions. Each block (i.e transaction) has a unique digital signature that is impossible to forge. 

But how does a block make it to the network? This is the interesting part. In every block, a code must be generated, from all the data inside the block,  which is passed through an algorithm that creates a unique pattern of binary digits. This code is generated merely by guesswork; computers take billions of tries to get to the right code (the more powerful the computer,  the quicker). This process is called mining. Only when this code is successfully found, the block can be added to the network. All the people on the network will then add this new block to the blockchain.

What Could Possibly Go Wrong?

Since each block contains the hash (unique code) of the previous block (in the figure above) changing or swapping two blocks will cause all the hashes in the proceeding blocks to change, making it extremely difficult to counterfeit. 

Another threat could be a creation of a whole new fake blockchain – how would the network decide which blockchain is the right one? It will simply determine which blockchain is longer. This is a deceptively simple but effective solution because to make a fake blockchain, one would need more computational power than 50% of the entire network (to compute all the unique codes), which is of course, nearly impossible.


Blockchain is a fancy name for a decentralised (not controlled by anyone) ledger that uses ideas from cryptography to make a system of recording data that makes it extremely difficult to hack.

One of its most popular applications is Bitcoin (a cryptocurrency), although its field is growing exponentially, with many systems being implemented and proposed.

Stay tuned for part 2!

This is the first article of a series aimed to give an insight to this popular topic in the simplest way I could come up with. If you’re not rubbing your eyes in confusion, I’m pretty sure you have tons of questions like:

  1. Where is Waqar Zaka in all of this?
  2. Do cryptocurrencies make a good investment or are they too volatile?
  3. What are the other applications or implementations of blockchain technology?

The important thing here is that I hope to have instilled a degree of curiosity that leads you to unravel the future of computer and economics. I look forward to seeing you return for part 2!

Amaan Baig
TlC Writer

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