A blockchain is a network. Like any network, it allows you to send things back and forth like messages or money.
But, it’s more advanced than the Internet networks we’ve been using up to this point because in addition to being distributed among many servers it uses cryptography to identify the sender and receiver and the digital asset that’s being used (e.g., Bitcoin).
So the core ingredients of the blockchain are that it’s a distributed system or network and it uses cryptography. But how does cryptography work exactly? Here, check it out:
Go to this simple website that generates a cryptographic hash. If you enter the word “elephant,” for example, you’ll get this “hash”:
And if you enter the phrase “Up, up and away” (or try your own phrase) you’ll get this hash:
Now whether you input one letter, two words, or a file with 450 sentences, you’ll get an output of a hash, just like you see above, with 256 characters that are a combination of letters and numbers.
So that’s pretty straightforward. The point is you can take the most infitesimal amount of data, or an enormous amount, and get a 256 character output every time. It’s a digital signature for that data (or data file), small or large, that you can be absolutely certain is trustworthy.
And here’s the point.
A hash, a digital signature, is important for individuals using the blockchain, like you and me, but it’s also critical for extending and securing the blockchain overall.
This global security role is played on Bitcoin’s blockchain by an entity called a “miner.” A miner maintains a server or node on Bitcoin’s blockchain and signs up for this role in order to get paid in Bitcoin.
What a miner does is bundle up the most recent transactions (e.g., today I sent you one Bitcoin) on the blockchain into a 256 character hash, thereby creating the next “block” in the blockchain. And, importantly, she links the hash of the current block to the hash of the previous block in the chain.
The result is every other server node in the blockchain can now verify and trust all of the data in every block in the blockchain. They can trust it because all of the data in the new block, and in every previous block, will produce the exact same 256 character hash.
A particular miner as opposed to the thousands of other miners for the blockchain gets to create the hash for the most recent block, link it to the previous block, and get paid for it, based on a mathematical game. Unpacking their mathematical game, and why it’s necessary, is for a different post.
Charlie Noyes of Pantera Capital does a fantastic job of explaining how hashes and mining works in Patrick O’Shaughnessy’s “audio documentary” Hash Power, Episode 1 (he starts at the 31min 8sec mark). Highly recommended.