What is a “Blockchain”? – The Money Jungle

I’m going to cover a lot of basics very quickly, over time I will add lots of links instead of describing things that are well-covered in many other articles, and it really isn’t my goal to cover it extensively, simply to give a quick overview and a sense of how it applies to our world. In particular to our money jungle in the different forms it takes in crypto-currency, Non-Fungible Tokens (NFT’s), and the different related technologies such as Smart Contracts.

I took the liberty of scribbling a quick graphic of a blockchain in the graphic above. At a very high-level, the block chain is made up of Blocks, each block has a reference to the previous block and all the blocks together make up the Block … Chain … BlockChain. You can think of each block as a set of entries called a Ledger, and just like an accounting ledger, every entry in the ledger represents a transaction that was performed using the Blockchain. There are many chains out there, you are probably more familiar with the branded products such as Bitcoin, Ethereum, and others, but they’re all basically the same idea.

Now the interesting about a blockchain ledger is that it is Distributed. And what does that mean? Well, a ledger is basically a database (like spreadsheet) of transactions, but in the case of the blockchain, there is not one single computer system that “stores” the database, instead the chain is “stored” across a bunch of systems connected to the network and hence the term “distributed”. I double quoted stored because distributed databases vary in how they are actually stored, whether they’re replicated, synchronized and all those geeky terms, but in this case the importance of being distributed has more to do with the fact that there is no single system in charge of the database. This is what is also termed as “decentralized”, also referring to the fact that there is no central system that controls or “owns” the database. Instead, in this distributed world, there is something called “consensus” which basically means that enough systems in the network (called “nodes”) must agree on the validity of the chain before it can be considered correct and can be trusted.

Ultimately the big whoopee about the blockchain is that it’s hard to fake anything cause if you don’t control all the consensus nodes, you can’t cheat by paying off one system administrator, or by stealing their passwords. And all this is made secure because it is based on technology that is very old and very-well tested called Public/Private Key Cryptography, or Infrastructure, you may have heard people talk about PKI. (Here’s a quick teaser on how public private key cryptography works).

To sum up, the blockchain is a secure ledger that records transactions, there are different chains out there that have different features, and to keep this a short tutorial we will cover just a few high-level definitions and features to help us keep focus. Back to the blockchain, rather than define my own set of terms, I decided to pick a set of definitions at random, so if there’s a term you really need to look up, here’s your glossary from Consensys. On the blockchain, you send and receive transactions and transactions are send from an address, to an address, which you may also know as a wallet. The issue with calling it a wallet is that the wallet actually doesn’t store anything, it really is just an identifier used to send and receive transactions on the blockchain. I think it’s also important to note that, particularly in the world of crypto currency, who is on the other side of the wallet is, for lack of a better word, anonymous, or at least pseudo anonymous in that it can be hard to track down who generated the address (remember the key pairs we discussed previously). In essence, creating a wallet really means you get a private/public key pair, which does need to be stored somewhere — if you choose to store it yourself, you are the custodian of your keys, although some people choose to let a company like Coinbase store their key pairs and they become the custodians for the wallet. But now i’m going far too deep into uses of the blockchain, so let’s defer this chat for my next posts.