What Is A Blockchain – The Easy Explanation

A blockchain is a way of recording and storing information in a secure way.

It’s often compared to a digital ledger which stores every transaction ever made, and distribute it across the entire network. Every block in the chain contains a certain number of transactions. Every time a new transaction is made, it’s recorded and added to every ledger in the network.

Transactions are signed with an immutable cryptographic signature, which is called a hash.

If a change is made to one of the blocks in the chain, it would reflect on every block across the chain instantly.

This makes the blockchain secure and safe from hackers.

As new blocks are added, the blockchain grows larger. And the bigger the blockchain, the more secure it is.

Transactions on the blockchain

Authentication

Cryptographic keys are used to identify a user and provide access to the wallet associated with that specific key. Every user has a private and a public key.

Authorization

When users have agreed on a transaction, it needs to get authorised. In most cases this is done when a majority of the computers in the network recognize the transaction as valid.

Proof of Work

The computers in the network needs to solve complex mathematical problems (mining) in order to add a block to the chain. Upon solving a problem, miners get rewarded and a block is added.

Proof of Stake

Proof of stake consensus mechanism for processing transactions and creating new blocks in a blockchain. A consensus mechanism is a method for validating entries into a distributed database and keeping the database secure.

The mining process

When a computer or a network of computers solves complex problems, blacks and transactions are added to the blockchain. This process is called “mining”. As the network grow, the problems that needs to be solved gets harder and more complex.

The odds of solving one of these problems are around 1 in 6 trillion. To have a slightest chance of solving a problem of this magnitude requires massive computing power, and an enourmous amount of electrical power. Because of this miners often team up in groups called mining pools.

The mining of Bitcoin consumes approximately 70 TWh of electricity every year. That’s three times as much electricity as all of Ireland uses on a yearly basis. This also makes it expensive to mine, not only in hardware but in electricity.

Proof of stake and programmable cryptocurrency

The more modern blockchains are using a more efficient way of validating transactions. With the use of a consensus protocol called “Proof of Stake”, the participants in the network have a chance of getting to verify and validate transaction.

Most often this means that you own an amount of the native currency for the chain, and often that you lock the assets for a period of time. The more currency you have staked, the bigger chance of getting rewarded.

With the Ethereum network came the technology of programmable cryptocurrency, or “smart contracts”. These contracts can be programmed to execute a variety of cool stuff under certain and specific circumstances.

How long does a transaction take? Find out here: Transactions On The Blockchain

Where can I buy cryptocurrency?

There are several exchanges where you can buy cryptocurrencies online. I recommend signing up on Binance, Crypto.com or BitPanda. These three I personally use and trust.