Blockchain is a network, connected by many nodes all across the globe. It aggregates a multitude of transactions into ‘blocks’ and these blocks are all in a ‘chain’ together. This ‘blockchain’ dates all the way back to the first ever transaction. It is a public, digital, decentralised, distributed ledger which records all transactions for a particular crypto currency and is immutable.
Definitely sounds like a tongue twister. Although the fundamental concept is actually quite straight forward, we’ll break down some of the key attributes below:
All historical transactions are publicly available right back to the first ever Bitcoin transaction mined on 2009-01-03 18:15:05. Interestingly with the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. You can see for yourself here. You can look up any transactions, including your own at any time, there are a few websites out there which package this up nicely, we recommend www.blockchain.info
An interest effect with all transactions being made public and fully transparent actually provides more privacy for the user, below is a diagram in the original white paper:
Decentralised & Distributed:
There isn’t a golden source ledger. Instead, every single node that connects to the blockchain’s network has a full copy of all historical records. This attribute represents full transparency and is very powerful. Decentralization is vital to the immutability of the blockchain and also disruptive to the current 3rd Party Trust Intermediary transaction system. You no longer have to trust an institution or an individual with your transfer and funds. Because you have the ability to transfer and verify yourself directly.
Why is Blockchain not susceptible to attack?
Each block has a block header which is its hash – a unique stamp ensuring there have been no changes. Each block hash has a reference to the previous block hash forming a chain. The distributed ledger means everyone has a full copy of all historical records. This further ensures that all transaction records are irreversible.
For someone to attack the system. First, they would need to alter the records and rehash the block (which will take significant time and resources). Then they would have to alter each of the subsequent blocks. On top of that they’ll need to alter more than half the records held globally by different nodes. Hence this is computationally impossible.
Additionally, you cannot create coins out of thin air. At most an attacker would only be able to reverse their own previous transaction. To perform this would require significant CPU and hash power to overpower the network. If the attacker does have that level of resources, it would be more profitable for them to mine. They’ll have more coins than everyone else combined. Rather than attack the system and undermine the validity of his own wealth. This system provides incentives for nodes to remain honest and work together to protect the network.
The currency supply and supply rate are pre-determined, this gives it a gold-like characteristic and can be used to store value. Bitcoin for example, the max supply will be 21 million, new bitcoins will be created roughly every ten minutes with current circulation of around 18 million. We will be able to mine all Bitcoin by the year 2140.
To understand how new bitcoins and new blocks are created, what mining means and how mining works, see the section on Mining.