In the first article for this education series we took a look at what a cryptocurrency is at its core. With this second article we’re looking to expand into the technical side of a cryptocurrency and take a look at the blockchain.
Let’s start out with a definition: the blockchain is a fundamental structure of how transactions are recorded when using a cryptocurrency and the network that transmits those transactions. In other words when people are referring to a blockchain like the Bitcoin blockchain they are referring to all the logged transactions for Bitcoin and the computers or nodes that process them.
The blockchain is also often referred to as a decentralized ledger. What makes a blockchain decentralized is that it’s located in multiple places and not stored on one central server. Anyone can download the Bitcoin blockchain and also anyone can view it. Those computers or nodes that help to run the blockchain all have copies of the Bitcoin blockchain.
This idea of having the blockchain in thousands or millions of location all at the same time is imperative for the function of a cryptocurrency because it allows people to verify transactions are accurate and spot out anyone trying to play dirty. Combining that idea with other technical aspects help to keep Bitcoin and other cryptocurrencies secure and functional.
Furthermore, because of that design Bitcoin is NOT a private or even an anonymous way to spend money. Many people have misunderstood that aspect about Bitcoin and gone to jail because of it. (obviously I’m not advocating for you to commit any crimes, but if you’re going to don’t use Bitcoin for shuttling funds around or I’ll be disappointed)
We now have a tangential understanding of what a blockchain is and now we’re going to go through how the name was derived and what that means. As its implied the blockchain is a chain of “blocks”. A “block” is a grouping of verified transactions that have occurred for that cryptocurrency. The blocks are populated with transactions as they occurred in sequential order and the blocks or grouping of transactions are also organized in sequential order. Each block has a reference to the previous block so that they can sequentially be followed from the most recent to the first one. That reference to the previous block chains them together temporally forming a chain. Hence the blockchain. That’s the bare bones of the pieces of a blockchain. Now, let’s compare this to a technology you’re probably very familiar with Microsoft Excel.
A block is like a sheet in Microsoft Excel that has a hard limit on the number of transactions that can be placed in it. When that sheet fills up with transactions it will be closed and saved with its time and date. A new sheet will then be opened and transactions will be added to that one. Those sheets would then be organized in the order that they were created and have a link back to the previous sheet so it can be accessed “chaining” them together. There you have it that’s really all the blockchain is.
I stated before that the blockchain being publically available was important for its functionality. The ledger being publically available gives trust and transparency to the system. In essence the blockchain is “unhackable” and “trustless.”
What we mean when we say unhackable is that to change a block in the chain a person or group would need a ludicrous amount of computer power to go back and make an edit. Once a block is verified and a couple more have been found solidifying its place it’s place those transactions are permanent.
Anyone buying or selling a product or service with Bitcoin can verify if a payment was sent, who it was sent to, what amount was sent, and when it was sent all because it would be available for anyone to see. Because of that I don’t necessarily need a central authority to verify that a transaction occurred or that it was sent. I can just look myself and see that one address sent another address X amount of Bitcoin at a certain time.
There you have it those are the basics of the blockchain. In my next education piece I’ll be covering mining and how a blockchain comes to an agreement about what transactions are valid and how that solved an age old question called the double spending problem.
Thank you for reading today’s article! This is my second article for this week. My first had covered the privacy coin Loki and on Friday I’ll be covering Oceanchain. As always follow me on here or on Twitter @thant1194 or on InvestFeed @thant11 in order to stay up to date on all my articles as I release them. Thank you again for reading. I have to return some video tapes.