Explained – What is Blockchain in simple words?

Explained – What is Blockchain in simple words?

October 22, 2016 by Shubham Upadhyay
What is Blockchain

When I first heard about the term “Blockchain” a few years ago, the first thing came in my mind was “Its some kind of chain of blocks” & I was right. It is a chain of blocks, a distributed database, data is stored in the blocks & each block is connected to each other making a chain.

“Blockchain is a distributed database that maintains a continuously growing list of data records, chained together against revision and tampering.”


Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.

A network of so-called computing “nodes” make up the blockchain.


Every node is an “administrator” of the blockchain, and joins the network voluntarily (in this sense, the network is decentralized). However, each one has an incentive for participating on the network: the chance of winning Bitcoins, that is called as mining.

The distribution of data works on a peer-to-peer basis, rather than client-server. Peer-to-peer is like a gossip network where everyone tells a few other people the news, and eventually the message gets to everyone in the network. This is as opposed to client-server is more like a conventional organization where a boss tells subordinates the news, and the boss is a central point of reference, and potential failure. One benefit of peer-to-peer (p2p) over client-server is that with p2p, the network doesn’t rely on one central point of control which can fail.

The Bitcoin network: 

There is a file called “The Bitcoin Blockchain”, sitting on thousands of computers across the world, including my computer at home. This file contains data about all the bitcoin transactions, that is payments of bitcoins from one account to another, that have ever happened. This is often called a ledger, similar to a bank’s ledger which keeps a record of payments between bank accounts.  The computers which store this file also run software that connects them over the internet to the other computers running the same software. This forms a network of computers that can talk to each other, relaying information about: new payments & updates to The Bitcoin Blockchain (every 10 mins or so, a new “page” or block of valid transactions is confirmed and needs to be added to the files on all of the computers).

When you make a bitcoin payment, an instruction is sent to the network. The computers on the network validate the instruction and relay it to the other computers. After some time has passed, the payment gets included in one of the block updates, and is added to The Bitcoin Blockchain file on all the computers across the network.


For example – when an individual or business makes an electronic payment, they require a bank to track & record the transaction. Think about using a credit or debit card to make a purchase from a store. How does the store confirm a customer’s credit status? How is the transaction recorded? In this case, third party intermediaries, the seller & customer’s bank, approve, track & record the transaction for each party in their private accounts. But intermediaries also play an important role beyond financial services and transactions.

Think about the transfer of information. Think about real estate for example. Who records the change of property ownership & land rights when an individual buys a new home? Where are these records stored? In this case, the transaction records are kept by local government authorities who record all the important information pertaining property ownership, land size and legal rights. If government records didn’t exist, how would a home owner prove they own the property? With no repository of trusted records, anyone could potentially claim ownership of anything.

But what if there was a way of making a transaction that didn’t require the use of a trusted intermediary? Imagine direct business to business or peer to peer transactions. No banks, no government, no intermediaries of any kind.

Instead of a bank or other intermediary maintaining a private database of records, blockchain technology makes all records public.

For example, if person (A) transfers money or information to person (B) this transaction will be logged in the blockchain with a certain code. The blockchain creates trust because: a complete copy of the chain, which shows every transaction, is held by the entire network. If someone attempts to cheat the system or steal, they can be easily identified.


No Intermediaries – So What?

The elimination of intermediaries brings with it a number of benefits, many of which cannot yet be fully comprehended. Banks & governments for example, often impede the free flow of business because of the time it takes to process transactions and regulatory requirements. The blockchain could enable people and businesses to trade much more frequently and efficiently. This would significantly boost local and international trade. Blockchain technology would also eliminate expensive intermediary fees that have become a large burden on individuals and businesses. Think about the amount of money you spend on bank fees every year. Wouldn’t it be great to transfer money at no cost? There are also security benefits. Hacking attacks and fraudulent activities that commonly impact large central intermediaries would not be possible with blockchain technology. These are just some of the potential benefits blockchain technology could deliver. The technology could profoundly disrupt hundreds of industries that rely on intermediaries.


Quora, Wikipedia, Blockgeeks

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