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Understanding Cryptocurrency
Part 2- How Does Blockchain Work?

The goal of this article is to explain, without getting too technical, how a Blockchain works.

Transactions Pre-Blockchain

Before blockchain was created, customers relied on a central entity such as PayPal to facilitate transactions online. Upon submitting the order, PayPal would review and authenticate the transaction information. For the transaction to occur, PayPal would confirm that both the buyer and the seller are on the PayPal network. In addition, PayPal would attempt to prevent fraudulent transactions by verifying the buyer and sellers information through login-credentials, location information, and transaction history. If there are no red flags, PayPal would work with the buyer and sellers’ bank to complete the transaction. After the transaction is accepted, PayPal and the bank would take a portion of the transaction for facilitating the sale. These fees often range from 1 - 3.5%.

The fees largely depend on the online merchant used (PayPal, Square etc.) as well as the bank policies.

Blockchain In The Words of Jason Kowalski:

“A blockchain network is made up of many individual computers taking
the place of the large, central entities.

In the blockchain world,
the operators of these computers are called miners. These computers
(or nodes) make up the supply-side of the network.

A successful blockchain network will have a large
number of computers helping to transfer information
to enable computers in a blockchain network
to communicate with each other.

Blockchain technology uses an electronic currency or 'coin'
also known as ‘cryptocoin’, ‘cryptocurrency’, ‘digital coin’,
and ‘digital tokens’ [that are unique to that blockchain.]"

Transactions Utilizing Blockchain Technology

Recently, TradeMarketNews reported a 99 million dollar cryptocurrency transaction.  Not only did the transaction take roughly 2.5 minutes to complete, the individual only paid a 40-cent transaction fee. No banks, escrow or human middlemen were needed. Instead, the transaction was verified and processed through the Litecoin blockchain network.

Why It’s Important

A block chain transaction is unalterable, permanent and viewable by anyone who is part of that blockchain network. This allows a transparent step by step permanent history of ANYTHING, not just a purchase, placed into a network. As an example, a piece of diamond rough could be tracked accurately from specific mine, to exporter, to cutter to dealer eliminating any question about its history. This is already being done by a few diamond companies.

Here’s how it works:

The XYZ company is a part of a blockchain network. Customer Amanda wants to purchase an item from XYZ using cryptocurrency. She would purchase the cryptocurrency that XYZ uses from a cryptocurrency exchange just as if she were buying Eurodollars.

Next, she would obtain the XYZ’s receiving address. This is a unique string of numbers used by XYZ to receive money (much like a bank account number used for receiving wires).

Then, Amanda would input the amount needed to purchase the item and submit the transaction. Once the transaction is sent, computers in the network verify that the transaction is legitimate by “validation” rules that are set by the creators of the specific blockchain network. After the network has validated the transaction, it becomes stored as a block and permanently sealed. The transaction is now verified, and the money is received by XYZ.

While Medlars does not participate in a blockchain network, we like to stay informed especially when there's a chance it could affect our customers.

Special Thanks to German Martinez and Ryan Pavlich

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