By Albert Szmigielski
This post will attempt to describe in simple terms what a blockchain is.
Append only Data Structure
A blockchain is a data structure. What is a data structure you ask. Simply put, a container to store some data. What is so special about the blockchain then? The blockchain is an append only data structure, which means we can add to it, but never delete from it. This simple fact opens up vast possibilities. All kinds of record keeping is possible with blockchains, including a ledger of accounts.
What about the chain part?
Yes, the chain is very important in the blockchain. Data is stored in bunches, just because it is more efficient that way. Those bunches are called blocks. But what chains them together? Each block has a link to the block preceding it (except for the first block, called the genesis block, of course). The links are kind of a digital signature, more specifically a hash digest of the block. We will talk more about hash functions later, for now all you need to know is that you cannot fake this digital signature. This is precisely the reason why you cannot delete anything from the blockchain. In order to do so you would have to recalculate the signatures for every block following the one where the change was attempted. This is computationally infeasible, you would be competing against the entire Bitcoin network.
The Bitcoin blockchain is a ledger of all bitcoins in existence. Every transaction involving bitcoins is recorded in this ledger. No single entity controls this ledgers. Bitcoin network participants (called miners – more on that later) compete for the right to add a block to the blockchain. It takes a lot of computing power to add to the blockchain, but miners get rewarded in newly minted bitcoins. The reward stands at 25 BTC now, but it halves every four years.
The Bitcoin blockchain is decentralized, meaning it is not controlled by any single entity. That is the single most important aspect of the Bitcoin Blockchain. Decentralization does away with censorship, intermediaries, control by governments, and other undesirable side effects of centralized systems.
The Bitcoin blockchain has been and is used for purposes other than just keeping track of bitcoins. In a very clever way people figured out how to store bits of data on the blockchain, opening it up for other uses. For example it is possible to store a digital signature of a last will on the blockchain. This way it can be proven that a particular will existed at the time it was added to the blockchain (each block added has a time stamp). Any changes to that will would disagree with the digital signature thereby revealing an attempted modification to the will.
Currently blockchains are all the hype. Banks and financial institutions are announcing almost daily, what they are going to be doing with blockchains. For many applications using a blockchain will be advantageous, for some it will not. Only the future will tell how extensively we will use this data structure to store records of some kind.