> For the complete documentation index, see [llms.txt](https://docs.anodos.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.anodos.finance/education/what-is-blockchain.md).

# What is Blockchain?

<mark style="color:$primary;">Blockchain can be described as a value-exchange protocol. It can be used to track ownership, transfers and provenance of assets.</mark>

<figure><img src="https://2773531205-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwPYQpCxrPJoaRvqUIVza%2Fuploads%2F3SM36PGAmUFGLaI9DBVw%2FWhat%20is%20Blockchain.png?alt=media&amp;token=8ba97f84-e765-4c3e-8ae0-40a83e292570" alt=""><figcaption></figcaption></figure>

## <mark style="color:$primary;">🧠 Cypherpunks and Digital Currency</mark>

<mark style="color:$primary;">In the 1990s,</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**Cypherpunks**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">began to experiment with the concept of a</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**digital currency**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">that was not dependent on an organization issuing it.</mark>

<mark style="color:$primary;">This sort of digital money would be:</mark>

* <mark style="color:$primary;">Identifiable as being</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**scarce**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">and</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**limited in supply**</mark>
* <mark style="color:$primary;">Acceptable as money since it would be</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**provably difficult to create**</mark>

<mark style="color:$primary;">In</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**1998**</mark><mark style="color:$primary;">,</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**Wei Dai**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">proposed</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**“b-money”**</mark><mark style="color:$primary;">, an anonymous, distributed electronic cash system.</mark>\
*<mark style="color:$primary;">b-money was never implemented</mark>*<mark style="color:$primary;">, but it inspired later work on blockchain.</mark>

<figure><img src="https://2773531205-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwPYQpCxrPJoaRvqUIVza%2Fuploads%2F0taNQHYgt65b57e1Vn6I%2FWei%20Dai.png?alt=media&amp;token=64922ebb-3f48-4085-8c1e-c5259ce83b81" alt=""><figcaption></figcaption></figure>

{% hint style="info" %}
*<mark style="color:$primary;">b-money was never implemented</mark>*<mark style="color:$primary;">, but it inspired later work on blockchain.</mark>
{% endhint %}

<mark style="color:$primary;">In</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**2004**</mark><mark style="color:$primary;">, a system called</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**Reusable Proof of Work**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">was introduced by</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**Hal Finney**</mark><mark style="color:$primary;">.</mark>\ <mark style="color:$primary;">This system was designed to</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**enable users to verify the transfer of tokens in real-time**</mark><mark style="color:$primary;">.</mark>

***

## <mark style="color:$primary;">🚀 Then Came Bitcoin</mark>

<mark style="color:$primary;">In</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**2008**</mark><mark style="color:$primary;">, an anonymous person or group using the pseudonym</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**Satoshi Nakamoto**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">introduced the concept of</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**distributed blockchains**</mark><mark style="color:$primary;">.</mark>

<mark style="color:$primary;">He modified the blockchain architecture to allow the addition of extra blocks without requiring them to be signed by trusted parties.</mark>

<figure><img src="https://2773531205-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwPYQpCxrPJoaRvqUIVza%2Fuploads%2FH08WccVsDbUQvcjweTti%2FFirst%20Forum%20Post%20Introducing%20Bitcoin.png?alt=media&amp;token=1f2e792f-a34b-40d0-a8c4-5cbc2df7ad7d" alt=""><figcaption></figcaption></figure>

***

## <mark style="color:$primary;">⛓️ What Is a Blockchain?</mark>

<figure><img src="https://2773531205-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwPYQpCxrPJoaRvqUIVza%2Fuploads%2FEf8kYtNK0s0UHF1m1X4W%2FHow%20blockchain%20works.png?alt=media&amp;token=41b3e372-f414-47c0-a5b9-c21ba3008535" alt=""><figcaption></figcaption></figure>

{% tabs %}
{% tab title="In a nutshell" %} <mark style="color:$primary;">📘  A blockchain is a</mark> <mark style="color:$primary;"></mark>*<mark style="color:$primary;">distributed online database</mark>* <mark style="color:$primary;"></mark><mark style="color:$primary;">made up of blocks (or ledgers), each containing a timestamp and a reference to the previous block.</mark>

<mark style="color:$primary;">It is:</mark>

* <mark style="color:$primary;">**Continuously growing**</mark>
* <mark style="color:$primary;">**Publicly verifiable**</mark>
* <mark style="color:$primary;">**Connected in sequence**</mark>
* <mark style="color:$primary;">**Tamper-resistant**</mark>

<mark style="color:$primary;">🛡️ Blockchain is often called a</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**distributed ledger**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">because it's:</mark>

* <mark style="color:$primary;">Verified by a</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**global network of computers**</mark>
* <mark style="color:$primary;">Not stored in any single location</mark>
* <mark style="color:$primary;">**More secure**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">from hacking</mark>

<mark style="color:$primary;">When a transaction occurs:</mark>

1. <mark style="color:$primary;">It is</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**broadcast to the network**</mark>
2. <mark style="color:$primary;">Each node</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**verifies and encrypts**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">it</mark>
3. <mark style="color:$primary;">Once verified, it is</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**added to the block**</mark>
4. <mark style="color:$primary;">The record is visible to all, but</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**user identities remain anonymous**</mark>
   {% endtab %}

{% tab title="Extensive " %} <mark style="color:$primary;">Blockchain is often referred to as a distributed ledger because it is constantly being updated and verified by a network of computers around the world. It is not stored in a single location, which makes it more secure from hacking attacks. When a transaction is made, it is broadcast to the network, then each computer on the network verifies the transaction. Also each transaction is encrypted. Once the transaction is verified, it is added to the block. All this information is public and everyone can see the transactions that have been made. However, the identities of the people involved in the transaction are anonymous, as long as there is no link between your wallet address and your identity.</mark>
{% endtab %}
{% endtabs %}

***

## <mark style="color:$primary;">📓 Simplifying Blockchain: The National Ledger</mark>

<figure><img src="https://2773531205-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwPYQpCxrPJoaRvqUIVza%2Fuploads%2FBSk9ZtKKRtzcEs2p1L1Q%2FSimplifying%20Blockchain.png?alt=media&amp;token=076c43df-d75c-44cd-962a-8af9da90e3eb" alt=""><figcaption></figcaption></figure>

{% tabs %}
{% tab title="In a nutshell" %} <mark style="color:$primary;">Still confused? Think of a</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**blockchain as an accounting book**</mark><mark style="color:$primary;">, or better yet, your country’s</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**national ledger**</mark><mark style="color:$primary;">.</mark>

* <mark style="color:$primary;">Every event or transaction is recorded</mark>
* <mark style="color:$primary;">**No central authority**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">controls it</mark>
* <mark style="color:$primary;">Every citizen has a</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**copy**</mark>
* <mark style="color:$primary;">New updates are</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**shared with all**</mark>
  {% endtab %}

{% tab title="Extensive " %} <mark style="color:$primary;">Still confused about what a blockchain actually is? Let’s simplify it. Think of a blockchain as an accounting book. You may ask, an accounting book of what? Think of it as a book or ledger for a specific network. Imagine it’s like your country’s national ledger or accounting book. In this ledger, every transaction or event that occurs within the country is meticulously recorded. Now, who’s in control of this ledger? Well, it’s not under the control of any single entity – it’s a collective effort. Every citizen in the country plays a role in maintaining this ledger, and every citizen gets an identical copy of it. Whenever a new transaction occurs, it’s added to the ledger, and this updated version is distributed to all citizens.</mark>
{% endtab %}
{% endtabs %}

***

## <mark style="color:$primary;">⚠️ Stopping the Bad Guys</mark>

{% tabs %}
{% tab title="In a nutshell" %} <mark style="color:$primary;">In any system, there will be bad actors who try to:</mark>

* <mark style="color:$primary;">Falsify transactions</mark>
* <mark style="color:$primary;">Inflate balances</mark>
* <mark style="color:$primary;">Create money from thin air</mark>

<mark style="color:$primary;">That would cause</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**inflation**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">and</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**harm the whole system**</mark><mark style="color:$primary;">.</mark>

<mark style="color:$primary;">But in blockchain:</mark>

* <mark style="color:$primary;">The network</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**reviews all transactions**</mark>
* <mark style="color:$primary;">Ledgers are</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**compared across nodes**</mark>
* <mark style="color:$primary;">The</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**majority rules**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">and rejects fake entries</mark>

{% hint style="info" %} <mark style="color:$primary;">This is</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**decentralization**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">in action: decisions made collectively by participants —</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**not by any central authority**</mark><mark style="color:$primary;">.</mark>
{% endhint %}
{% endtab %}

{% tab title="Extensive " %} <mark style="color:$primary;">However, in any system, there’s always the potential for bad actors. These individuals might attempt to deceive the network by creating false transactions, claiming they have more money than they actually do. If these false transactions were accepted, it would essentially mean creating money out of thin air, leading to inflation and a devaluation of the currency. This harms everyone. That’s where the strength of decentralization comes into play.</mark>&#x20;

<mark style="color:$primary;">The citizens, or the network users, compare their ledger copies and review the transaction history to ensure the truth is being told. Through a democratic process, the majority determines whether to accept or reject these questionable transactions. This is the essence of decentralization in a blockchain. The power rests with the majority, and decisions are made collectively.</mark>&#x20;
{% endtab %}
{% endtabs %}

***

## <mark style="color:$primary;">🧩 In a Nutshell</mark>

<mark style="color:$primary;">A</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**blockchain**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">is:</mark>

* <mark style="color:$primary;">A</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**decentralized**</mark><mark style="color:$primary;">,</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**immutable**</mark><mark style="color:$primary;">, online database</mark>
* <mark style="color:$primary;">Verified by a</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**global peer-to-peer network**</mark>
* <mark style="color:$primary;">Public but</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**pseudonymous**</mark>

{% hint style="info" %} <mark style="color:$primary;">Just like each country has unique laws,</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**each blockchain**</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">has its</mark> <mark style="color:$primary;"></mark><mark style="color:$primary;">**own rules, structure, and goals**</mark><mark style="color:$primary;">.</mark>
{% endhint %}