Trying to explain the Blockchain to someone is a bit like trying to explain quantum mechanics to your grandmother - after 15 minutes she still doesn’t understand, asks you for a cup of tea, and you probably walk to the kitchen feeling more confused than when you started.

Regardless of how or why, without the Blockchain cryptocurrency simply does not work. It is the very essence of the success of crypto. In reality, getting to grips with the Blockchain is not imperative unless you happen to be a miner or trying to become one. If you're only interested in buying and selling crypto you don’t need to understand how it works, just like you don’t need to understand how you’re able to stream the latest movie to your smart phone - it just works and you just watch. But since you’re still reading this article, I’m going to assume you have a curious mind, like me, so I will try to explain the Blockchain in less time than it takes you to brew that cup of tea for your granny. 

In a Nutshell...

The Blockchain is essentially a giant database of information. However, unlike most databases where data is entered into tables (e.g., Excel), here data is pooled together into blocks. When a block is full it is added onto the end of the chain of previous blocks (hence the name Blockchain).

That is a very simplistic summation, however, like an iceberg, there’s much more beneath the surface, so let’s delve a little deeper.

Breaking down the Blockchain

Each block in the chain is linked together using cryptography - a type of mathematical encryption - that encodes each block with a unique hash value (a string of letters and numbers of fixed length - like a very long password). Each new block also has the hash value of the previous block encoded in its data. Not only does hashing anonymise the data within the blocks, it also makes it incredibly secure. If you wanted to change a data entry from an earlier block, you would have to change the hash for every entry that proceeds it. This is because making even the tiniest modification to a single piece of data in the Blockchain would result in the hash value for that block changing. That would have a domino effect on all subsequent blocks, making all their hash values invalid. As the chain grows, so too does the complexity and difficulty of altering it.

Therefore, the Blockchain is referred to as immutable - a permanent record which cannot be reversed.

In theory, you can use Blockchains for a variety of uses, such as patient medical records, food production, electoral voting, as well as banking. Bitcoin adopted it to verify, authenticate, and record exchanges between individuals - like a digital ledger. Instead of trusting a single person to update and store this ledger, Bitcoin made it an open database to be shared amongst many users – anyone with a node. A node is a device (usually a computer or laptop) with certain specifications that can communicate with other nodes. Some of these nodes are more specialist and are called mining nodes. Miners, who run these nodes, confirm new transactions and update the Blockchain. Today there are estimates of more than 100,000 Bitcoin miners around the world

So, how exactly is the Blockchain used in Bitcoin?

Let’s imagine someone called Alicia wants to send 1 bitcoin to Billy. Alicia and Billy will broadcast the transaction to the miners who check and verify the details of the transaction (does Alicia really have 1 bitcoin? Is it really in the wallet she claims it is? Is the location of Bob’s wallet correct?). A miner does this for lots of other transactions that have been broadcast at the same time, and pools them together into a block. Using a mining node, the block is encrypted by solving a maths puzzle to find the hash value (this also acts as their proof of work). They submit this to the network of nodes as a proposal for the next block to be added in the chain. The nodes will check the validity of their work to ensure it meets all the various requirements of the Bitcoin protocols. If there is a majority consensus, the block is added, and all the nodes around the world update their copy of the Blockchain with this new version.

A new block is added to the bitcoin Blockchain every 10 minutes, and each time a new block is added, it confirms the validity of the previous block. A transaction is considered permanent after six confirmations (the addition of six new blocks) - once six or more blocks are added it becomes statistically impossible to change that version of the Blockchain. Since each block is timestamped and added chronologically, the Blockchain can be viewed as a historical record of every crypto transaction that has ever occurred. You can follow the transactions for any single Bitcoin and trace them back to when it was created, like a trail of breadcrumbs through a forest. This creates the trust necessary for a decentralised system to operate.

And there you have it - the Blockchain demystified in three minutes. One can, of course, deconstruct it even further and analyse the minutia to the nth degree...but who wants to go down that rabbit hole? Perhaps just sit back, enjoy your cuppa, and maybe talk to your gran about something else.

By: Alvin Michael

The views and opinions expressed herein are the author’s and are not intended to be used as advice to trade on the crypto markets.