Blockchain is not a new concept, but do you know what it is and does? Reading up on it can be confusing. In this short article, I will attempt to outline Blockchain in layperson’s terms.
Let’s begin by dissecting the above diagram. Ledger implies that it is a form of accounting or spreadsheet and that would be correct. Blockchain was created to track payments/transactions made via cryptocurrency. It is said to be secure in that the transactions logged here cannot be altered as can be the case with other means of accounting for transactions. The premise is that the block is unchangeable. Are you following me so far?
Data housed in the blockchain environment is stored in a block. Hence the name blockchain. The system that it runs on is decentralized and that prohibits any single person or entity from completely controlling it. All users are theoretically able to control it, but the information entered into the block is not able to be reversed or changed. It is a permanent record. All users can view the transactions making it quite transparent.
Programs available on Blockchain are called scripts. The scripts act as the database. Information is entered and saved on the script in a cell or block. There are x number of blocks on the spreadsheet. That saved information is encrypted via a hexadecimal number they call a hash. Blockchain runs on a distributed system whereby the information entered, encrypted, and saved is copied onto many machines and all that information must match in order to be validated. Hashes are entered in the next block.
Every cryptocurrency has its own blockchain. Transactions may differ slightly from cryptocurrency to cryptocurrency. Transactions say from Bitcoin are sent to what is called a memory pool. It gets stored there and queried. Minors or validators pick up this query and enter it into a block. When the blocks are filled up from transactions they are closed and encrypted. Mining begins at that point.
Every computer on the network works in concert to “solve” the hash. Each one creates a random hash except for what is called the “nonce”. A “nonce” is a number that will be used only once.
Miners begin with the “nonce”. A value of one is attributed to the hash depending on whether or not the “nonce” is equal or less than the target hash. This in turn creates another block and hash. When the miner achieves a valid hash this process stops and the miner is rewarded.
When the block is closed the transaction is complete. Validation is the next step. Validation occurs when five other blocks have confirmed the data in the transaction. Confirmation takes about one hour or approximately ten minutes per block.
Confused yet? Don’t be worried, you are not alone!