What is Blockchain?

We keep hearing more and more about Bitcoin and blockchain, but for a lot of us the picture isn’t getting any clearer.

Most explanations spend too much time telling you how blockchain works and not enough time on what blockchain is; it’s a bit like trying to explain the internet by going over TCP/IP protocols.

It’s confusing, and you don’t end up learning much. In order to understand Bitcoin and blockchain, it helps to understand where they came from.

Unfortunately, no one knows who created Bitcoin; we only know they used the fake name Satoshi Nakamoto. It’s impossible to say what happened in the beginning, but we can still imagine how it might’ve happened.

Back in the 1980s, Satoshi was big into playing Dungeons and Dragons with his friends: Nick, Craig, and Hal. During one game, they decided to add a currency named DragonCoin. They created 200 DragonCoins by drawing a dragon on the top of a bottlecap, and gave 50 coins to each player.

This worked well for a while, but after a couple weeks Satoshi started to think someone was cheating. He had everyone place their coins on the table, and sure enough… there were 217 coins. Someone was definitely cheating, but no one was coming forward.

This infuriated Satoshi. How could one of his friends think it was ok to cheat? That night, Satoshi thought up a solution. Instead of using bottle caps to track the coins, he would just keep a record of every transaction. That way if there was ever any issue, he could look through all the transactions and figure out how many coins are owned by each player and how they got those coins.

At the next game, Satoshi brought his idea to the group. For the most part they liked it, though Craig and Nick had some concerns about trusting Satoshi (maybe there was more than one cheater...).

“Fine”, says Satoshi, “How about we all keep a copy of the list? That way if anyone tries to cheat the rest of us will be able to keep them in line.” The players weren’t exactly excited about having to do this extra work, but they also couldn’t think of any better ways to stop the cheating.

So they went ahead implementing Satoshi’s plan. They decided to start over and redistribute 50 coins to each player. To record this, each player would add 4 transactions to their list showing the game sending 50 coins to all players; kind of like getting money from the bank in monopoly.

Then, during the game, as the players trade amongst themselves, more transactions are added to the list. And since every player is recording every transaction, it becomes very difficult to get away with cheating… you’d need to convince at least half of the players to let you get away with it! Which might not be so hard with just 4 players. But imagine we’ve got a hundred players, or maybe even a thousand.

At this point it would be pretty much impossible to cheat. In fact, at a certain point you don’t even need new players to keep track of transactions. They can spend and receive coins without needing to know anything about what’s happening behind the scenes. And that’s pretty much what’s going on with blockchains, they’re just lists of transactions being maintained by thousands of people from all over the world.

So Bitcoin is literally just the list of all Bitcoin transactions. There may be a lot of complications to make sure no one’s cheating, but at the end of the day it’s just a list of transactions.