What is blockchain?
To understand we have to think about how money and data have traditionally moved around the world. Prior to computers, banks would hold a record of their account holders’ balance. For example below, Bob has $5 and Sam has $3. They both have a deposit slip proving they put the money in and the bank records (A) agree.
What happens when Bob sends $1 to Sam? We add transactions to the ledger, meaning that the accounts get longer.
So (B) updates the ledger and when combined we get (AB)
Prior to the internet, this was the only way the system could function.
However, the creation of the internet changed things. On the internet, everything is a copy. If you email a PDF to someone, you still retain a copy and there are now 2 identical files in two separate places.
However, this creates what’s known as the “double spend problem” for money. If someone sends money, it can’t just show up in the destination account, it needs to leave the senders account as well.
So we need to trust that when money is sent it is both added and subtracted. For this, we have to have trust in a central authority. What if that central authority can’t be trusted? Or what if it collapses?
Satoshi Nakamoto (the creator of bitcoin) explained in the bitcoin white paper that using a peer-to-peer architecture is the solution to the double spend problem. With decentralization, there are multiple identical records of the transactions. If one stakeholder drops off the network or does something unethical, the others are able to carry on without them as the majority rules. It’s economically intelligent for the various ledger holders to be honest as dishonesty ruins the value of the network.
However, now we have a new problem. How do we add new transactions when there are multiple copies of the transactions? Let’s revisit the time Bob sent Sam $1.
(B) has to be appended onto (A) which forms a chain of blocks. That’s all a blockchain is! A series of transactions which are appended onto each other.
How fast transactions are added depends on the coding of the blockchain.
- Bitcoin block time = about 10 minutes
- Litecoin block time = about 2.5 minutes
- Ethereum block time = 15 seconds
- thenewboston block time = 0.015 seconds
It’s worth noting that it isn’t necessary to understand what a blockchain is on a coding level in order to use one. Just like we don’t always understand the technology in our cars or what keeps the lights on, blockchain apps can be used without knowing the specifics (except how to be safe and we’ll cover that soon).