What is Blockchain?

Blockchain can be described as a value-exchange protocol. It can be used to track ownership, transfers and provenance of assets.

In the 1990s, Cypherpunks began to experiment with the concept of a digital currency that was not dependent on an organization issuing it. This sort of digital money would be identifiable as being scarce and limited in supply and, hence, acceptable as money since it would be provably difficult to create. In 1998, Wei Dai proposed “b-money”, an anonymous, distributed electronic cash system. b-money was never implemented but it did inspire later work on blockchain. In 2004, a system called Reusable Proof of Work was introduced by Hal Finney. This system was designed to enable users to verify the transfer of tokens in real-time.

And then Bitcoin happened. In 2008, an anonymous person or group of people using the pseudonym Satoshi Nakamoto, introduced the concept of distributed blockchains. He modified the blockchain architecture to allow for the addition of extra blocks to the chain without requiring those blocks to be signed by trusted parties. What does that really mean? Βlockchain is a distributed online database that maintains a continuously growing list of data records, called blocks or ledgers. As its name states, it is a chain of blocks, where each block is connected to all the blocks before and after it. Each block contains a timestamp and a link to the previous block.

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.

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.

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.

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.

So, in a nutshell, a blockchain is an online database, which is decentralized and immutable. Just as every country has its unique rules and goals, the same goes for blockchain networks. Each blockchain is distinct, constructed differently, and equipped with its unique features.