ELI5: What is a Blockchain, exactly?

ELI5: What is a Blockchain, exactly?

ELI5 Blockchain: A blockchain is a sequence of entries where any attempt to modify a previous entry would modify the entire chain.

It is an immutable data structure that holds data in chronological order of insertion. The data cannot be tampered with, not without everyone who has access to it being able to notice.

Each “entry” in this system is called a block. Blocks can be of any size, from tiny kilobyte sized blocks to several gigabytes large. Making blocks too large will require larger computers to process the signature (hash) of each block, so it is convenient to try and break these apart into chunks of reasonably sized data. This, of course, depends on what kind of data will be stored in the blockchain. If the average entry is just a few bytes in size, like in Bitcoin, then blocks can be limited to the megabyte scale. In fact, Bitcoin had fixed its block size to 1MB before SegWit. After SegWit, lots of larger Bitcoin blocks are being mined, some even passing the 2MB mark.

Every bit of information contained in a blockchain passes through a process known as cryptographic hashing. This process is very secure and the algorithm is chosen such that it does not cause collisions (same hash code generated for different information) and also in a way that the resulting code cannot be used to recover the originally hashed data.

Each block will then have a signature hash that is universally unique and impossible to reproduce except if you have the original data in the block, stored in the exact same order. For instance, if you took the exact same transactions and stored them in a different order within a block, the resulting hash would be different as well. Even though the block would contain the exact same data, the order with which they’re stored is different and this generates a different signature. This illustrates how blockchains do not allow for any aspect of the data to be modified, not even the order with which identical data was stored!

Blockchain is a special kind of database which does not allow any kind of tampering. Entries are recorded in chronological order and this order cannot be changed. Therefore, blockchains prove not only that data is valid, but also at which point in time that data was known. Therefore it can be used as “proof of knowledge” of information. Using a blockchain you can prove that you knew something at a certain point in time. This was used by the creator of Bitcoin itself, when he encoded the following newspaper headline into the very first Bitcoin block ever mined:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

This message is proof of knowledge timestamped January 3 2009. It proves that Satoshi Nakamoto had access to that piece of information on that date, and this date cannot be modified, ever.

Financial transactions are naturally well suited to be stored in blockchains. Money transfers happen chronologically and a secure record must be kept of each transfer. If the order were ever changed, the whole blockchain would be considered tampered with. The amounts and other transaction details are also impossible to tamper with. This makes the blockchain perfect for digital cash transactions.

When made decentralized, blockchains enable the kind of cryptocurrencies we now know as Bitcoin, Dogecoin, Cardano ADA and other standalone coins.

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