Table of Contents
In this article, we are going to explain what a blockchain is in very basic terms. By the end of this article, you’ll be able to explain this life-changing technology to those you love, so let’s get into it.
What is a Block in Terms of Cryptocurrency?
A block is just a bunch of data. In fact, the data could be almost anything, but usually, it’s just a collection of records. For Bitcoin, this data is literally just a list of transactions. For example, it might look like this: X pays Y fifty dollars, A pays B eighty dollars, and Y pays H fifteen dollars. If we’re dealing with Ethereum, it’s usually just transactions, but it can be a few other things like smart contracts.
Understanding the Ledger
A block is just a collection of records. Specifically, we call this record a ledger because it is a record of value exchanging hands. Blocks have limits and can only have so many transactions in them, so we have to keep adding more blocks.
What Happens When Blocks are Full?
When blocks are full, we add them to the network. This process involves something called mining. Since Bitcoin is a proof-of-work model, we have to prove that we mined them.
What is a Hashing Function?
A hashing function is a system where you input something and it outputs a hash. Bitcoin uses the SHA-256 hashing function. SHA stands for Secure Hashing Algorithm, and 256 refers to the number of zeros and ones in the output.
Key Characteristics of Hashing Functions
Guess and Check
You can’t find the input of a hash; you have to guess and check.
Sensitivity to Input Changes
Changing the input slightly changes the output significantly.
Computation Time
Calculating the hash takes some time, especially for larger inputs.
Mining and Finding Hashes
When mining, we’re trying to add random numbers to the block to get a special ending in the hash. The difficulty increases with the number of zeros required at the end of the hash, making it time-consuming and computationally intensive.
Decentralization Explained
A blockchain is decentralized, meaning that more than one person can have access to and change the records. This ensures that no single entity has control over the entire network.
Why Decentralization Matters
Decentralization prevents any single entity from manipulating the records. It also incentivizes participation by rewarding miners with cryptocurrency.
The Concept of a Blockchain
The term “blockchain” comes from linking blocks together. Each block contains the hash of the previous block, creating a chain. This ensures that any changes to a block affect all subsequent blocks, maintaining the integrity of the data.
Mining Rewards and Linking Blocks
Whoever solves the block and finds the magical hash that has however many numbers of zeros we’re looking for, adds “Why board crypto’s account received two bitcoins for mining” at the top of the block as their mining reward. This is how more bitcoins are actually created, although that number changes and it gets smaller and smaller as time goes on. They also add the hash of the last block to it, making it a chain since each block refers to the last one.
Ensuring Data Integrity
If you try to go back and edit an old block, the newer ones all change because you’ve messed up the hash it pointed to. This ensures the immutability of the blockchain, making it a reliable and secure system for recording transactions.
Conclusion
We have blocks consisting of data and, in the case of cryptocurrency, usually a list of transactions. After we have a block, miners find the hash that solves it and link it to the last block, forming a chain. This is the essence of what a blockchain is.
