Useful Analogies for Understanding Blockchain
Blockchain is a buzzword that has been increasingly circulating around over the past decade. Ever since Bitcoin became a thing, much has been made about its underlying blockchain technology and its potential to be game-changing, akin to the world wide web (www) revolution. Unprecedentedly, technological tools combined with economic and mathematics can now offer us the decentralisation of data. One of blockchain’s most intriguing use cases is the decentralisation of finance and therefore, it could well be the biggest coup for tech in fintech. However, the concept of blockchain may be confusing to some since blockchain in itself comprises subsets and subsets of economical and technical components. Therefore, it will be beneficial to have some analogies to allow one to grasp its essence without the need to dive deep into the nitty-gritty of each subset.
I will kick off with a simplified explanation for blockchain and then move on to explain some selected nuances that make up the technology.
For an in-depth introduction to blockchain, here is a truly excellent explanation.
What is a blockchain?
Think of blockchain as a ledger which records ownership of a good and its transfer between all participants of the network. A network is a connected group of devices, such as computers and mobile phones which can exchange messages with one another because they obey the same underlying communication rules. Bitcoin’s blockchain records the ownership of the Bitcoin currency, but a blockchain can also represent ownership of a house, a car, financial bonds etc. The key here is that this ledger is not kept and maintained by a central entity (such as banks), but it is publicly owned (stored at participants’ computers) and maintained (every participant puts in work to update and validate the record).
A blockchain is a way of bookkeeping to protect the integrity of a distributed network. There are two main aspects of a blockchain, which are Integrity and Distributed. Distributed means there is no single point of failure, and integrity means it is trustworthy and safe from corruption. There is no single point of failure because every participant gets a full copy of the ledger as well as its updates and therefore the ledger holds the source of truth. If one of the participants decides to quit, the rest will be unaffected.
There is integrity in a blockchain network because of the way the algorithm works. If one tries to tamper with the records, such as changing the amount of a previous transaction, other participants will notice the inconsistency and will render the tampered data obsolete. There are other components (subsets) which play a part in making this possible such as cryptography and consensus protocol to name a few.
At this point, just think of blockchain as a publicly-maintained ledger of who owns what, where any single participant is unable to compromise the truthfulness of the ledger.
In fact, blockchain is just one example of distributed ledger technology. Distributed ledger technology (DLT) is a wider field and therefore deserves an article for itself, perhaps another week.
The Library Catalog — How are the transaction data stored
Have you ever wondered how before the advent of computers, librarians seemingly knew where every book is located in a huge library without the break of a sweat? Thanks to a system known as a card catalogue, each book has its own unique card and one can find a book in a multi-level library by simply looking up the catalogue for the book’s information such as its title or the author’s name and then checking its location. There are, usually, several card catalogues which differ based on the type of information used to arrange the cards, for example, the book’s title. If one arranges the card catalogue based on the book’s date of entry to the library shelf, this will be analogous to how data is being stored in a blockchain.
Let’s assume each of these cards has a unique reference number. As such, a newly bought book which is meant to be added to the collection will get its own card with a new reference number as well as its own location on the shelf. This is just like how the blocks are chained together in the order of the time they are added. The latest block will add to the last block in the chain.
In fact, the blocks that are chained together do not contain the data itself, just like how the catalogue does not contain the content of the book. The transaction data is stored in a separate database. What’s stored in the block (also referred to as block header) is the root of the Merkle Tree of the transaction data. Merkle Tree is a data-linking structure and for simplification’s sake, all you need to know now is that the root provides references to all the transactions in the block, just like how a card catalogue contains the location and the reference number to the book in the library. For a simple and crisp explanation on Merkle Tree, follow this link.
The final piece that completes this analogy is the link between the library book and the block. We can think of each page of the book as a transaction, and all the pages make up the book. This is analogous to how a block contains a collection of transactions. And just like how every book has other informative details such as the author, publisher etc, every block also contains details such as the timestamp, nonce, hash values of previous blocks etc. (These are more technical terms which will not be explained in this article but they are integral subsets of blockchain)
A Walk in the Park — More than a chain
As discussed above, every participant keeps a ledger which records the most updated ownership of a certain good. In reality, differences in internet speed often cause some participants (also known as nodes) to receive the updated chain later than the rest. This is problematic as some nodes might be working on outdated information. In reality, the blockchain network will look more like a cactus than anything else.
The workings of how the ledger records eventually converge to a single version of truth can be described with the analogy of a beaten path in the park. A beaten path is not part of the architect’s plan when the architect designed the park. It is formed by lazy people who decided to walk the shorter distance instead of following the built path. The cycle goes like this: first, you need one lazy person to walk a path through a patch of grass. Then, the second person saw that happening and thought ‘why not’, and hence followed suit. Soon the third, and the fourth, and so on. Sometime later, an unaware person who is also lazy but did not see the previous path decides to walk a new path. Some may follow suit, some may walk another new path and some may walk the first path. Give it long enough, the paths will converge to an established single path. And once or twice, there will be some edgy person who tries to walk a new path, but for the most part, people will follow the established beaten path.
This is analogous to how the history of a blockchain is persisted. A participant with slow connectivity will be unaware of the latest update and thus will unknowingly be validating old transactions and add it to the chain. This is like how a new path is created. While this participant will be busy dealing with that, others might already be working on the latest information. On a long enough time scale, the chain will converge and the longest chain is always taken as the most updated version and hence, the truth.
Summary
To summarise, blockchain is conceptually a ledger that every participant in the network owns a copy of in order to record the most updated information of ownership of a good. Its main purpose is to maintain integrity in a distributed system. It is stored in a way which resembles the library card catalogue system and its history is selected in a manner akin to a beaten path. These are, however, only the tip of the iceberg for the budding field of blockchain. If you are inspired, here is a collection of reading resources by Andresson Horrowitz, the famous US venture capital firm.
Of course, there is no perfect analogy, but having them can help you understand some of the nuances on the conceptual level. Lastly, I do want to acknowledge and recommend the book Blockchain Basics — A Non-Technical Introduction in 25 Steps by Daniel Drescher as it had served not only as a good content reference for this article but also as a remarkable beginner-friendly book.
