What is a Blockchain?

What is a Blockchain?
Photo by Launchpresso / Unsplash

If you've ever seen an accounting ledger, you're already halfway there in your understanding of what a blockchain is. In simple terms, it's a connected list of records. Imagine a growing list of digital records, resembling real a life ledger book, known as blocks that are connected using cryptography.

These blocks each have cryptographic signature associated with another block in the chain, a timestamp, and some transaction data signifying the connectivity of the chain. This cryptographic signature is known as a hash, it's implemented in computer code and is essentially a one-way mathematical algorithm to obfuscate simple information into complex information.

For example, there may be a function f(x) such that if x = hello, f(x) meaning f(hello) may return some value that resembles 0x43a5fc78 (like the image above). There's no way for someone who reads 0x43a5fc78 to decode it back to the original message hello. This one-way nature of these hashing algorithms or hash functions as they're commonly known, ensures secure encryption of this data (in this example, the term "hello"). Applying this same concept to blockchains ensures that each chain of blocks is unchangeable (especially by malicious 3rd parties).

Telephone Game

Think of a game of telephone, where person A whispers something to person B who whispers something to person C, and so on all the way down to person Z.

In real life, people mishear at some point and the message changes. But imagine a perfect communication method where each whisper is clear and person Z actually hears what person A originally said to person B.

Imagine this conversation:
Anna to Bob: Hi Bob, the code word is apples
Bob to Cathy: Hi Cathy, the code word is apples
... and so on
Yasmin to Zoey: Hi Zoey, the code word is apples

If you were a malicious third party, in order to make person Z believe they heard something else (other than the code word is apples), you'd have to ensure person Y heard something else, and for that, person X would've heard something else and so on. Essentially, you'd have to modify the whole chain to mutate the real message.

This is why blockchains are resistant to modification, and essentially a trust-less peer to peer system of record keeping because it's in their very nature to preserve the original transaction data. The ledger or record(s) these blockchains keep, are distributed along various nodes (or people in the above code word is apples example) so that even if some subset of nodes were corrupt in some way, there would be consensus aka agreement by the network on what is the true value of any particular record.

More on consensus protocols later!

So what?

Now you may be wondering, why is this significant? Haven't we always had cryptography and encryption in some form or another since the World Wars? You're right! But not in the world of finance. Mostly in the world of government/military communication, diplomacy or espionage.

Enigma encryption-machine
Enigma cypher machine. Photo by Mauro Sbicego / Unsplash

In the world of finance, this application of cryptography in the form of blockchain technology has a tremendous opportunity to disrupt traditional 3rd party trust based financial systems such as banks, and payment processors.

If we have a secure form of paying each other via digital currency such as bitcoin, while ensuring there's no way to mutate or modify (for malicious purposes) a secure blockchain, then we can eliminate a whole host of wealthy high income middle-parties who take advantage of middle and lower income populations. We can provide those who are less fortunate a secure financial identity, prevent theft/fraud, and increase trust in financial systems.

The blockchain was invented by a person (or group of people) using the name Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin.
- https://en.wikipedia.org/wiki/Blockchain

What problems are we solving?

Blockchains' secure immutable nature ensures transactions in cryptocurrencies like Bitcoin aren't falsified like fiat currency such as cash bills and coins may be. It solves the double spending problem, where the same unique token of value (may it be a metal coin, a painting, or a cash bill) is maliciously replicated and spent twice. Once by the true owner of the token, and once by a malicious actor who has successfully replicated that token. This ensures there's no devaluation of the original currency.

Blockchains remove the need for a central entity that manages the ownership of currencies or any resource that specific blockchain is backing. Blockchains can manage assets outside of currencies as well. There are many applications powered by blockchains.

A blockchain is simply defined as the concept of a distributed trust less peer to peer ledger. It just so happens that the first serious implementation of a blockchain is the cryptocurrency Bitcoin.

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