What is Blockchain?

A blockchain is a public ledger of information collected through a network that sits on top of the internet. It is how this information is recorded that gives blockchain its groundbreaking potential.

Blockchain technology is not a company, nor is it an app, but rather an entirely new way of documenting data on the internet. The technology can be used to develop blockchain applications, such as social networks, messengers, games, exchanges, storage platforms, voting systems, prediction markets, online shops and much more. In this sense, it is similar to the internet, which is why some have dubbed it “The Internet 3.0”.

The information recorded on a blockchain can take on any form, whether it be denoting a transfer of money, ownership, a transaction, someone’s identity, an agreement between two parties, or even how much electricity a lightbulb has used. However, to do so requires a confirmation from several of devices, such as computers, on the network. Once an agreement, otherwise known as a consensus, is reached between these devices to store something on a blockchain it is unquestionably there, it cannot be disputed, removed or altered, without the knowledge and permission of those who made that record, as well as the wider community.

Rather than keeping information in one central point, as is done by traditional recording methods, multiple copies of the same data are stored in different locations and on different devices on the network, such as computers or printers. This is known as a peer to peer (P2P) network. This means that even if one point of storage is damaged or lost, multiple copies remain safe and secure elsewhere. Similarly, if one piece of information is changed without the agreement of the rightful owners, there are countless other examples in existence, where the information is true, making the false record obsolete.

Why is it Called “Blockchain”?

Blockchain owes its name to how it works and the manner in which it stores data, namely that the information is packaged into blocks, which link to form a chain with other blocks of similar information.

It is this act of linking blocks into a chain that makes the information stored on a blockchain so trustworthy. Once the data is recorded in a block it cannot be altered without having to change every block that came after it, making it impossible to do so without it being seen by the other participants on the network.

Normally, each block contains the data it is recording, for example a transaction like 1 Lisk token being sent from Alice to Bob, as well as timestamps of when that information was recorded. It will also include a digital signature linked to the account that made the recording and a unique identifying link, in the form of a hash (think of it as a digital fingerprint), to the previous block in the chain. It is this link that makes it impossible for any of the information to be altered or for a block to be inserted between two existing blocks. In order to do so all following blocks would need to be edited too. As a result, each block strengthens the previous block and the security of the entire blockchain because it means more blocks would need to be changed to tamper with any information.

When combined, all of these create an unquestionable storage of information, one that cannot be disputed or declared to be untrue.

Who Created Blockchain?

The first recorded mention of blockchain technology came in a document, or whitepaper, published in 2008 by the mysterious founder or founders of Bitcoin, only known as Satoshi Nakamoto. Speculation about the true identity of this undeniably brilliant coder has continued to this day, with Nakamoto claiming in early correspondences to be a man living in Japan, born on 5th April 1975.

However, due to his decision to document Bitcoin in English and his mastery of the language, the general belief in the blockchain community is that Nakamoto is of non-Japanese descent and either European or North American. As blockchain, and as such the Bitcoin network, is transparent, anyone can view Satoshi Nakamoto’s Bitcoin holding. He is known to currently hold roughly one million Bitcoins.

There are several theories as to why Satoshi Nakamoto decided to remain anonymous, however the general consensus is that he was a timid developer who simply did not wish for the attention that would have undoubtedly come with creating such a disruptive technology.

It is also worth knowing that Satoshi Nakamoto did not build every aspect of blockchain from scratch. In fact, none of the technologies used in blockchain were particularly new and had been around for several years. However, it is when they are used in combination with one another that they create the revolutionary offering that is blockchain technology.

Blockchain for Kids

Blockchain is all about fairness and security. It is a big database that lets you record information safely and interact with anyone, without the need to trust them or rely on a big company.

We all interact everyday with one another, mostly on the internet. We chat, we buy things, we use services like banks. But how do we know who to trust online, especially if we’ve never met them but want to deal with them directly? Some companies will check who can be trusted or have reviews of products and sellers. But these businesses can also charge expensive fees. We should be able to deal with each other safely without the need for a “middleman” and pay for it. 

All of our information and everything that we do on the internet is stored online by companies whose job it is to guarantee trust. Our names, emails, addresses, the websites we visit, where we go and so much more is recorded somewhere. But can we really be sure that all of this information about us is definitely safe from hackers or not being used unfairly? Nobody wants a stranger knowing everything about them.

The main problem is that all of this information is stored in one place, on a form of a big computer, which makes it easier to attack and steal information because hackers can target a single spot. Blockchain works differently.

Explain Blockchain Like I’m 5

Blockchain is decentralized, which means it does not have a central point. All of the information is stored on a lot of different computers, which makes it more difficult to break into a single device or steal information.

Blockchain technology is a way of recording information onto lots of different devices all at once through the internet. There are many different blockchains, storing different types of information. You can have a blockchain recording money, recording identities, storing music or agreements between people. Literally any type of information can be recorded onto a blockchain in a better way than we have ever seen until now. Blockchain gets rid of the problem of being unable to trust anyone because everything that is there is meant to be there. We can be sure of this thanks to computer programs that check everything that is added to a blockchain. 

The data that is recorded on a blockchain is copied onto many different devices that are connected to each other to form a network. Whenever any new information is added, all of the devices are updated through these computer programs.

Why is it called Blockchain?

Any information that is added to a blockchain is packed into blocks. These blocks link together to form a chain. This is where blockchain gets its name from.

On a blockchain all of the information that is added creates a special code that everyone can see. This is where the idea of a chain comes from, the blocks are linked together by this code. This means that anyone can check to make sure that the information added to a blockchain is correct and is what it should be. Every time more information is added to the chain, the code changes to show that this has happened. So, if anyone tried to change the data that is already recorded on a blockchain, it would spoil that code and everyone would know about it. Thanks to this all of the information on a blockchain is always true and correct.

This gives us the opportunity to live in a world where we don’t need always need large companies taking our money, just so we can trust one another.

Blockchain Network Explained

A blockchain is a network. A network is a group or system of connected people or things. The computers or devices on the network, known as nodes, make up a blockchain network.

The networks we use today are centralized. This means that they have a central point, where all information flows in and out from. One of the reasons that this is not good is because whoever controls this central point has full control over network data and users.

A blockchain network is different from a normal network because it does not have one central point that stores and controls information. Instead, the responsibility to look after the network and store information is shared by different devices, known as peers, on that network. This is why a blockchain network is known as a peer-to-peer network, shortened to P2P. The name comes from the fact that the tasks and responsibilities of maintaining the network are continuously shared from peer to peer.

In the example above Jacob wants to go to as many rides as possible during his day at the funfair. In the centralized funfair he always has to go to the ticket booth where he needs to queue every time he wants to go on a different ride. This means he has less time to enjoy as many rides as he would like. The centralized model is slower because everyone at the funfair have to all go through the same ticket booth, where the ticket sellers have control in choosing who can go on rides. The central point slows everything down and gives power to one person, the ticket seller. In the decentralized model everyone is free to move from ride to ride as they want, everything flows smoother. Not having a central point can be a lot better as it allows things to move around more freely and safely, in the case of blockchain this would be information.

On a blockchain information is being constantly recorded and interchanged between all of the participants on the decentralized network. This is a huge improvement because data is not held in one centralized point, meaning nothing slows down when more people join. It also makes it less likely that any data will be hacked or lost. A decentralized record of information is better than the central system that we are used to today. 

A peer on the network makes some of their computer power (disk storage, processing power, etc.) available to the network to help with storing the data that the network is recording. A blockchain is an ecosystem where the devices are working together to help the system function. On a P2P network, the type of network a blockchain is built on, information is always being recorded and interchanged between the participants. This spreads out control and responsibility among lots of different peers, while improving the security of the network.

What is a Node?

Imagine a blockchain as a network of different devices connected to one another through the internet. Those devices are what are called “nodes”. A node can be any electronic device, including a computer, phone, a printer or even a fridge, as long as it is connected to the internet. All nodes are equal in importance on a blockchain, but a node can have different roles in making a blockchain work. For example, a node can:

  • Store some of the information recorded on a blockchain.
  • Store a copy of all of the information recorded on a blockchain.
  • Process transactions, put them into blocks, add them to a blockchain, approve them and broadcast them to the network. This is called mining or forging.

For the nodes processing transactions, doing the mining or forging, it is very important that the node is always up and running. A node that is not running could miss a chance to validate a block of transactions, meaning the miner misses out on their rewards or, even worse, being removed from their role as a miner or forger. 

Mining Made Easy

A block being mined means information is being accepted and added to a blockchain database. There are different ways to mine, forge and safely add information to a blockchain. These methods involve using computer programs, called consensus protocols.

For example, in a “proof of work” consensus protocol, the “proof of work” is an answer to a complex mathematical problem, one that requires a lot of work to work out. The answer can easily be seen to be right or wrong, once you have that answer. This is exactly what the “mining” process is, suggesting answers to the mathematical problem, hoping to get it right. This is very difficult and doing this can take a lot of time and incredible computer power, which is why miners normally set up hundreds or thousands of computers to run and solve these questions. 

People are happy to do this because for every riddle solved, and every block mined, the miner receives a reward in cryptocurrencies, which can later be sold for fiat currencies, like dollars or euros.

Other types of consensus protocol include “proof of stake” and “delegated proof of stake”, which work in different ways, but carry out the same job, adding information safely to a blockchain.

Consensus for Kids

Having consensus means being in agreement. Consensus protocols are the rules that allow the devices on a huge network of computers, spread around the world, to agree about what should be added to the database that is a blockchain. They are one of the most important parts of blockchain technology.

Getting everyone to agree on anything is difficult, even if it is just how many cookies Jacob had after dinner, and that is between people who all live in the same home. Imagine how hard it is to make different computer systems around the world agree on what information is true and honest. Especially when there are some who are trying to trick the system on purpose. Making this happen is what consensus protocols do and why they are such an important part of blockchain.

Consensus protocols are the methods used to confirm information, like who sent money to whom, and add them to a blockchain. The special thing about consensus protocols is that they cannot be cheated.

Anyone can try to add information to a blockchain but making sure that the information is actually meant to be recorded and accepted is the challenge that consensus protocols solve. This is important as it actually allows blockchain technology to work, without the need for a centralized authority to make it happen.

There are different consensus protocols and they have different ways of making sure nobody can they cheat them, but they are all created specially to be difficult to carry out or fake, in terms of time, computer power or how much of a cryptocurrency is needed to do so. Different consensus protocols use different ways of stopping people from trying to cheat them.

Below we will explain the three main consensus protocols and how they are designed to keep a blockchain functioning and honest.

What is DPoS? (Delegated Proof of Stake)

Delegated Proof of Stake uses a system of voting to decide who should be securing the network, so which nodes are validating blocks of transactions. The people holding that particular cryptocurrency will be able to make votes, each token usually being worth one vote. This system works well because it means that everyone holding the currency can choose who runs the network and those holding that cryptocurrency will want what is best for the network, as the value of the tokens that they hold depends on it.

Delegated Proof of Stake prevents the system from being cheated by giving the people who care most about the network, those who are holding the cryptocurrency tokens, the opportunity to vote for who should be securing the network and adding information to the database.

What is PoS? (Proof of Stake)

In a proof of stake system, the person who creates the next block is decided by how much of a certain cryptocurrency they are holding. The more a user holds the more likely they are to do so. There is also randomization involved to make sure that the richest holder is not always getting richer by validating blocks and collecting rewards.

The proof of stake here is everyone owning a token and wanting what is best for it because it affects them.

What is PoW? (Proof of Work)

The “proof of work” comes in the form of an answer to a mathematical problem, one that needs a lot work to figure out, but can easily be seen to be right once the answer has been found. The only way to solve these mathematical riddles is through nodes on the network, presenting long and random answers. This means that the problem could be solved on first try, although this is impossible because of how complicated the questions are.

Consensus protocols are special because they allow unrelated devices to all come to an agreement with the need for centralised leadership to guide them. They also do this without there being a chance of the protocol being cheated, which is an incredible achievement and one of the most revolutionary aspects about blockchain technology.