What is the Blockchain ? (Explained Simply) Part 1
The blockchain is a way for you to send assets to another person without a trusted institution. Lets dive a little deeper.
Transactions before Blockchain
I live in the US and I want to send money to a friend Mitch in Australia. To do this, I would have to ask my bank to wire money to Mitch’s account. The bank would charge a fee and the transfer would take a few days.
Mitch and I both trust the bank to do these three important functions.
- Verify that the request came from the account owner
- Ensure the account has enough money.
- Complete the transfer.
The blockchain does these steps by using two ideas. Cryptography and an open distributed ledger. This post will explain the ledger.
Public Distributed Ledger
Treat the ledger like a Google Doc that everyone sees. This document has everybody’s account information.
Google Document Analogy
Figure 1: The Ledger Version 1
If Sam tried to send Dana 6 Bitcoin, we obviously would not allow that. What would the ledger look like if Dana sent Casey 1 Bitcoin?
Figure 2: Updated Ledger Version 2
What happened ?
Dana sends her only Bitcoin to Casey. Dana and Casey’s accounts get updated and Sam still has 5 Bitcoin. Note the version updated from version 1 to version 2 .
What should we do with version 1? This is an interesting question, we could pretend it never existed and overwrite it or we can do something brilliant. Link it to version 2.
Figure 3: Linking the blocks
If you look inside the Version 1 block it is the same ledger as Figure 1 above. Sam has 5, Casey has 10 and Dana has 1.
Another transaction happened! Add it to the end
Figure 4: Added Version 3
Its starting to look like a chain!
The Blockchain
Key Point: All the ledger versions are “chained” together creating a blockchain! In this example, each block is a version of the ledger. Everyone who wants it can get a copy. This makes it distributed meaning the chain is not in a single place.
This is the basic idea of the blockchain. With this knowledge you can understand Bitcoin’s blockchain which behaves slightly different.
Bitcoin Blockchain
In Bitcoin, each block contains transactions. Account totals are found by adding up all transactions (If this does not make sense, let me know) Account numbers in Bitcoin are not names but public keys. For now treat them as home addresses. In the real world, if you know someone’s address you can:
- View the outside of the home
- Send mail to the address.
In the Bitcoin world, if you know someone’s Bitcoin address you can:
- View the account total
- Send Bitcoin to the address.
My Real Bitcoin address: 1FS3za8y7MXZNzLm982wVhNmqTv6igvwFc
Obviously you can do way more things in the real world. Someone can break in, steal everything and burn the place down. So whats stopping you from going to my Bitcoin address and stealing everything? Cryptography! You have better odds breaking into the White House than stealing my coins. I’ll explain why in a future post. The next post will shall talk about Blocks. You can find that here.
This post did not cover every aspect of the blockchain. One important bit we left out was how blocks get added. This along with other topics will get covered in future posts.
Credits
Thank you for reading our content, please press the (clap) if this post was helpful.If you were confused by anything, write a comment and I’ll gladly answer your question!
This post was created by Gerry and Rich Mpanga
“If you can’t explain it simply, you don’t understand it well enough” — Albert Einstein
ETH address: 0xEc81dFB8fCb8DcF745Cd05BAce75707E1efc4b0B
LTC address: LSoBv4vK7j6azF8cdJacrYxFuNs4tb9mCS
