Blockchain 101

Blockchain 101

Blockchain doesn’t need to be complicated.

While it can get very technical when you’re still getting your feet wet it’s better to learn in simple terms that might not be technically perfect, rather than worrying about using complex jargon that’s 100% accurate.

Here’s a quick breakdown to get you started.

How Does it Work?

On your computer is a file that has a record of transactions. All around the world are accountants that also have this exact same file on their computers as well.

When you decide to buy something, the person you’re buying from gives you their account details. A new line item is then written in the file on your computer. This line item also has a special code that references the code located in the previous line item. When another line item is created after yours, it also references the code found in your line item.

You and the seller both get a unique number that gives you each ownership of the line items related to each of your accounts.

Your computer then sends a mass email to a large portion of the accountants that also have a copy of your file to let them know about your transaction.

All of the accountants then quickly look and see if your transaction is legitimate, and also if you can afford it. The first one to check and validate the transaction then sends a “reply all” e-mail with proof of this. If all the other accountants agree then everybody’s files are updated with the new line item. The accountant that was the first to verify the transaction is also paid a commission.

This is a very simplified metaphor for how blockchain works.

Using technical terms, you’re what’s known as a “node”.

That file that was on everybody’s computer is a “ledger”.

The account details of a buyer or seller are known as a “wallet address” that links to their account or “wallet”.

That line item in the ledger is known as a “block”.

The special code in the line item is known as a “hash”.

All the accountants are called “miners”.

The fact that the same file exists on everyone’s computers means it’s “distributed”.

The salary paid to the accountant that verified your transaction is paid in “cryptocurrency”.

The email containing proof of your transaction being legitimate is known as “proof of work”.

The blockchain itself is “immutable” because it’s near impossible to change any line items after they’re made. Only a new line item can be created.

If you altered your line item it would change the hash associated with it, and this wouldn’t match up with the transactions before and after it.

And lastly, when we talk about transactions, these involve digital currency. So instead of using physical cash, the line item in the record of the transaction is actually the money.