What is blockchain? The short version: a record or a database not owned by one particular entity or person but distributed among all its users (or nodes in the network) where new entries or blocks are added after they are validated by the network’s users.
You can compare blockchain with Wikipedia. They both live on the internet but the difference being that the Wikipedia database is owned and maintained by one entity and a user with specific permissions is able to alter the database.
With blockchain, each user can update the record with a new entry or block, however, in order to for that block to be accepted and for the record to become “official”, a majority of users have to agree that the new block is valid.
Blockchain is not a new technology. It is actually a combination of existing technologies with proven value that are combined and applied in a specific manner:
• private key cryptography;
• the internet;
• a governing protocol.
The idea to combine these came from the creator of bitcoin, Satoshi Nakamoto.
Private key cryptography is a powerful way to fulfil authentication requirements and prove ownership. A user has both a public key and a private key. No other personal details are required.
Any interactions are performed on a peep-to-peer network, created between its users or nodes.
After authentication, a user must fulfill other requirements such as having enough money, broadcasting an accepted transaction type etc. (be authorized). To ensure interactions with the record are valid, the entire network must be committed to correct recordkeeping. This is done by applying the rules of blockchain to each transaction – the protocol.
Blockchain has become a backbone for what can eventually be a “transaction” layer of the Internet.
The whole transaction process starts with the two keys: the public key and the private key. Combining the two keys results in a digital signature which can be used to prove ownership and therefore network knows the user can interact with it.
Now the user can make an announcement on the network: I am sending this amount to this user. Basically this means a new adding a new block to the record, containing a digital signature, timestamp and other relevant information. This block is broadcast to all the nodes of the network.
Based on the blockchain’s protocol or rules, the other nodes try to validate the node. The incentive to do this, to offer one’s computer power to validate a block, is that there is a reward for one of the nodes. So, they all work together to validate the block and get the reward – this is also called mining, hence the nodes that do validation are also called miners.
When a majority of miners arrive at the same conclusion (a block is valid), the new block is added to the chain.
The validation rules, verification process and incentives are different for each blockchain and depend on its protocol. Just like validation, when the enough of nodes come to a consensus, the protocol can also be changed and improved.
