In the past five years, Google searches for “bitcoin” have surged. People all around the world are curious about
cryptocurrencies. Which means your clients are probably curious, too. To help you answer inevitable client questions on crypto,
we’re providing some educational articles that can help you explain the basics. One of the most common client questions is
going to be: How do they work? And the answer to that question lies in the blockchain.
To understand cryptoassets, you must first understand what a blockchain is. Blockchain technology, also known as distributed
ledger technology or DLT, is the foundation on which all of decentralized finance rests. Ledgers record transaction details (for
instance, when you balance a checkbook). Ledgers keep track of where items (typically money) have been in the past, and how
they change hands over time. With blockchain, the entire ledger is a series of blocks that lists transactions and chains them
together as they are created. Hence why this technology is called blockchain.
Blockchains are also distributed ledgers. Unlike a physical checkbook you manage privately, all new entries to a digital ledger are computationally verified and shared publicly. When a block reaches a certain number of entries, it is verified by miners or stakeholders and the block is chained to the previous one. For this to happen, at least 51 percent of the participants in the blockchain must verify the details of each transaction. This act of verification is performed by “miners” who solve computational puzzles to complete blocks of transactions.
Since a majority is needed to verify each transaction (as opposed to receiving verification from a single source) participants are
incentivized to behave properly, and it would be next to impossible to fool enough participants to get away with something
Once a block is verified and added to the blockchain, those transactions are there forever. Cryptography is a technique to ensure
secure correspondence — it transmits data to appropriate recipients, while also ensuring that unintended third parties cannot
decode the message. Transactions are encrypted and decrypted using public and private keys. Once a transaction is added to
the blockchain, it cannot be changed. For this reason blockchains are viewed as immutable. Altering transaction history is
nearly impossible. This, combined with consensus verification, provides significant transparency and security.
Additionally, there are no data storage limitations on a blockchain. Hypothetically speaking these blockchains could continue in
perpetuity, making them extremely scalable. All transactions ever recorded on a blockchain can be viewed by anyone. Public or
‘permissionless’ blockchains (like Bitcoin) are extremely transparent. Anyone with internet access has access to this type of
Blockchains are heralded by many as a transformational technological innovation that is capable of democratizing and
improving financial markets, economic activity, and even the internet itself. Bitcoin, may be the best known blockchain, but the
technology is already in use across “main stream” companies like FedEx and Walmart, as well as thousands of cryptoassets.
Blockchain technology has become the vehicle for explosive innovation. Beyond the financial impact, which was our main focus
here, there are numerous computational, logistical, and social impact solutions that are enabled by blockchain.
To learn more about blockchains, including a complete version of this article with additional details, visit our partners at Onramp
Academy. You can also sign up for Onramp Invest to help clients monitor any crypto investments via the Advyzon platform.
Schedule a consultation to learn how Advyzon can help you support client interest in cryptoassets.