Please note that my simple descriptions won’t be perfectly accurate – there are and will be more exceptions. I’m going to focus primarily on the Bitcoin blockchain to keep things as simple and useful as possible. There are many different blockchains. Other cryptocurrencies use a blockchain with the features & benefits that support their unique value proposition. If you see something wrong, please speak up so I can get it corrected. The last thing we need is more wrong information.
A Blockchain is The Foundation
A blockchain is the foundation of a cryptocurrency like Bitcoin. A blockchain is a specialized type of database that provides a unique set of features that makes it a powerful tool in certain usecases like digital money and other applications where accurate, unchangeable historical information is very important and multiple parties all have a vested interested in the accuracy of the information.
A Blockchain is a Database
A blockchain is a relatively new type of computer database. Almost all computer programs use a database to store information. There are a wide variety of databases and each has a unique aspect that gives it superiority in different situations. A blockchain database has several unique characteristics that are listed below.
A Blockchain is a Ledger
Your bank uses a ledger to store your account information. Your bank doesn’t really keep a separate stack of cash in their vault for each depositor. Instead, they maintain a ledger of transactions where money is either added (deposited) or subtracted (withdrawal) from your account ledger. Yes, the bank has other databases too, but your deposits and withdrawals are stored on a ledger. Ledgers are specifically designed to be very fast to add information and completely comprehensive containing all transactions related to an account. Each one starts with a zero balance and contains nothing more than transactions adding to or subtracting from that original zero balance. A ledger does not allow for records to be changed once they are entered – only a reversing ledger entry is allowed to correct a mistake. A ledger may account for one or many different accounts at the same time.
A Blockchain is Distributed
An exact copy of the blockchain exists on many, many internet connected computers. Since the ledger exists on many different computers and the ledger changes frequently with additional transactions, all of the computers must agree that their copy of the ledger is the true and most recently updated ledger. This sounds like a big problem but it is actually very beneficial to a blockchain. The distributed nature of the blockchain forces consensus among all of the computers that contain a copy of the ledger. There can only be one truth and it must be agreed upon by all the computers participating in the distributed ledger. Technically speaking, it is possible to have a blockchain run on a single computer but doing so eliminates the ability to completely validate and secure it from any changes.
A Blockchain is Immutable
Once something is written to a blockchain, it can not be changed. Accounting ledgers are similar in that transactions that have already been recorded may not be changed – an “offsetting” transaction is required rather than editing or deleting the original transaction. This immutability provides a unique historical perspective on the transactions contained in the blockchain that is largely unavailable with any other type of database. Immutability is not perfect and not guaranteed but is implemented by using a proof of work algorithm that makes it incredibly expensive to make any historical changes – typically far more than the historical change might be worth.
A Blockchain is Transparent
Blockchains can be viewed and read in their entirety by anyone with permission and/or access. While you can easily see the records in the blockchain, you may not be able to understand the origination, destination or purpose of them. Some blockchains are permissioned – meaning they are not publicly visible and you must have permission to view them.
A Blockchain is Secure
Blockchains are secured by miners. Miners compete or work collaboratively to add new records to the blockchain. The miners must all agree that a single blockchain is the single truth. Miners are either paid or rewarded for their work securing the blockchain. Miners protect the blockchain in several ways – preventing double spending, preventing changes to the historical ledger, preventing address blocking (fungibility) and minting new coins. There are a variety of schemes to secure a blockchain and Bitcoin’s blockchain is secured by Proof of Work which rewards miner’s efforts to secure the transactions and places a heavy cost in front of anyone who desires to change historical transactions and violate the security of the blockchain. Proof of Stake, Federated Consensus, Proof of Elapsed Time and Proof of Storage are examples of other security schemes used to secure different blockchains.
The Bitcoin Blockchain Summary
- Bitcoin, the dominant cryptocurrency, is stored on a single Bitcoin blockchain.
- All Bitcoins are stored on the bitcoin blockchain = Database.
- Bitcoins consist of an Address on the blockchain with transactions = Ledger
- The Bitcoin blockchain is distributed all over the world and run by Miners and Nodes = Distributed.
- The Bitcoin blockchain cannot be changed to prevent double-spending = Immutable
- You can see the Bitcoin blockchain at https://blockchain.info = Transparent
- Bitcoin Addresses can be seen by anyone but can’t be changed by anyone without the proper key = Secure
A short video explaining blockchains in 2 minutes – https://youtu.be/r43LhSUUGTQ
A blockchain is a powerful technical tool in certain use cases like digital money. There are new uses for blockchains being devised or discovered every day. Maybe the best summary of the power of a blockchain is a publicly viewable database of historical transactions that is verified to be true and secured to prevent malicious actors and only allow the owners of each data record to control that data. You’ve already heard the words “Accountable” and “Transparent” used by the younger generations. These traits are highly valuable to the younger generations as a way to control and improve society. Blockchains provide and promote these traits, so it’s not a surprise they are one of the driving forces of technical and social innovation.
My Personal Take on Blockchains
I like blockchains as a technical tool for storing and retrieving information. But, I’m also skeptical that they can solve every problem out there as I frequently see and hear in the news media. I see blockchains as very useful for managing accurate historical information among a diverse group of interested parties – and that’s about it. Sure, it can apply to almost every situation that needs a database, but the cost of running a blockchain as a database is higher than other types of databases so the benefits of using a blockchain need to be relatively high and unique. They’re almost the only viable option for digital currencies where they prevent double spending. But, just because it has a blockchain doesn’t mean that it actually solves a problem.
Curated Bitcoin Resources by Jameson Lopp – https://lopp.net/bitcoin.html
BBBC Subscribe! – Subscribe to Boomers, Blockchains, Bitcoins & Cryptocurrencies
BBBC #1 – How I Got Started