Blockchain for Dummies: What is blockchain?
The simplest and most comprehensive explanation of blockchain there is.
Perhaps you have tried to learn about blockchain and cryptocurrencies in the past but found the whole topic overall confusing and full of technical banter you didn’t fully understand. Or maybe this is your first attempt at uncovering the world of cryptocurrencies and you are looking for an uncomplicated, straight-to-the-point simplification of blockchain technology to kickstart your crypto knowledge.
In either case, you are lucky you have found this article, in which I’ll try my best to deliver on the promise of it being the truly simplest and most digestible blockchain explanation there is.
Let’s start with the simple…
What is blockchain?
In simple terms, blockchain is a type of database, containing (non-surprisingly) digital information. Fair enough, right?
Now, let me complicate it only a little bit. Blockchain has several very unique features that separate it from other types of databases:
Firstly, it is a distributed decentralized database.
Typically, you would have your digital information stored somewhere on a cloud storage, on a single server and then other users would gain access in order to view or edit it. Blockchain provides a different solution: instead of there being only one real copy of the digital information, there exist many exact copies of it (each user has his own). However, these copies are interconnected and constantly verified against each other to make sure every copy is the same at all times. Any change to the information then must be approved by all users and if it is, all copies are updated simultaneously. This in practice means that even though there exist many copies of a single digital information, they all behave as one. One could then say that there aren’t several copies of one file but rather that one file is shared among several users.
To understand it better, let’s try transforming these abstract terms into a practical example.
Imagine you and your team of 9 other co-workers are assigned to fill in an excel spreadsheet with company’s clients’ information. So, the company decides to create a file on their server and asks everyone to submit their part of the task. This is the typical “centralized” solution: there is only one real copy of the file (usually maintained by a third-party), which is stored in one place and everyone simply contributes to it. The blockchain solution would be something similar to this: Everyone has their own copy of the excel file stored on their computer but — even though they are stored on multiple devices — the files behave as one. If one co-worker wants to add a new chunk of information into the spreadsheet, others first verify and approve this addition and only then the new data become part of the file(s). Every co-worker sees the work of others and the team in practice doesn’t need the company to finish the task and fill in the spreadsheet.
Of course, the process of verification and approval of new data is in reality automated and in most cases extremely quick — otherwise it would be slow and tedious manual labour.
However, even with the spreadsheet metaphor being imperfect (also partly because it doesn’t take into account some other aspect of blockchain we will discuss later), it demonstrates the difference between centralized and distributed decentralized database well. Additionally, we can already see some advantages blockchain has over a centralized database. If, for example, one of the co-workers decides to go rogue and to sabotage your company by typing nonsensical or false information into the spreadsheet, blockchain mechanics won’t allow him to do so. Other co-workers (in terms of blockchain called nodes) simply won’t approve his change of the file and will continue in their work, writing him off as a corrupted node. And as such, he can’t even be an as*hole by not approving proposals of others, because the remaining co-workers will simply carry on without him. Therefore his only options are to either participate in the process honestly and fairly or to not participate at all.
Alternatively, if a co-worker loses their copy of the file (it may become corrupted, hackers delete it, etc…), they’ll be able to simply get another one from their colleagues, because they all share the exact same file— synchronised and up-to-date at all times.
To summarize the points above: blockchain is a distributed decentralized database that is shared among the nodes of a network.
Next key difference that sets blockchain aside from any centralized database is the structure of the data. Whereas typically you store your data in folders or tables, blockchain puts data in groups, which it then links together via cryptography. These groups are called blocks and because they are tied together in a data structure that could be visualized as a chain, these mechanics are what gave blockchain it’s current name.
You have probably heard the term mining Bitcoin thrown around. What it means is just that whenever Bitcoin is mined, a new block (containing information mostly about Bitcoin’s transactions) is added to the Bitcoin’s blockchain.
Which brings us neatly to the next important feature of blockchain: it’s immutability. You may have noticed that I have mentioned instances of adding to the blockchain several times, but never editing blockchain or deleting information from blockchain. Well, that is simply because you cannot alter the information in any way once it’s sent and minted into a blockchain — you cannot go back to modify or rewrite it.
Last but not least, the third core feature exclusive to blockchain is the anonymity of its users while the network as a whole remains completely transparent. Every user of blockchain is able to see every transaction that ever happened on it. However, because the actual users are hidden behind wallet addresses (which you can perceive as a sort of account number), no private information about them, not even their names, are made public. Moreover, because you don’t need to fill in any information to interact with blockchain — there’s no sign up or registration — the possibility of leaking any private information at all is almost absolutely minimized. The decision whether or not to make their wallet address public lies in the hands of each user.
The ability to provide such transparency while giving its users the option to remain completely anonymous is in large part tied to the fact that blockchain (at least blockchain in its truest form — as e.g. Bitcoin) doesn’t answer to and isn’t controlled by any central authority. It is a system that is self-sufficient and independent on any government, bank, company, etc. Which is one of its merits, as we will discuss in later articles.
To wrap this chapter up, let’s try and summarize all the points above.
So, what is a blockchain? Blockchain is a type of database that is distributed and decentralized. It is independent on any central authority, open and accessible to anyone and allows its users to remain anonymous while providing 100% transparent data about the network as a whole. The name blockchain comes from the way it processes data — it puts them into groups called blocks and by using cryptography links them together. Once you put some information into a block, there is no way to modify it.
That is, at least from my perspective, a fundamental definition of blockchain.
Of course, individual blockchains can have different features that won’t exactly fit into the definition above. Nowadays, you can even find private and centralized blockchains, which goes directly against my previous statements. So what to make of it? My advice would be to view the points and features highlighted in this article as a general rule (sort of your baseline for defining blockchain) and to treat any exceptions from this rule as such. There’s no point in getting lost in nuances.
I hope you have found this article helpful.
In my next Blockchain for Dummies article, I’ll focus on the question of how blockchain works, so stay tuned.