When Bitcoin (BTC) first appeared in 2009, few people had a clear idea of what it was, let alone the waves it would generate both financially and technologically. The underlying blockchain technology was more or less a new concept, and like most new concepts was poorly understood in general. In 2018, blockchain remains a hot topic: while it is tied in many people’s minds to cryptocurrencies, it is actually a standalone concept on which cryptocurrencies can be based. This article will clarify how blockchains work and, just as importantly, where blockchain ends and technologies based on it begin.
This post is an updated and expanded version of our 2017 cryptocurrency primer.
Blockchain
What Is Blockchain and What Does it Look Like?
The purpose of blockchain is to create a ledger; that is, a record of historical transactions (be those financial transactions, messages, etc.).
Fundamentally, the blockchain is aptly named: it is a chain of blocks of data which at their most basic level (at least in most current implementations) can be conceptualised as something similar to the diagram below, which is based on the blockchain as famously implemented by Bitcoin.
Any given block of data in this implementation contains four pieces of information:
Timestamp – The time at which the block was created.
Transaction Root – The details of the transactions contained in this block – i.e. this section of the ledger. The amount of data held in this section can vary significantly: in Bitcoin, it will be approximately ten minutes’ worth of transactions. Other implementations use shorter windows.
Previous Hash – The hash of the last block in the chain – this is how the chain is linked together. When any given block has been processed, its hash becomes the Previous Hash of the next block in the chain, thus allowing historical records to be linked together and traversed.
Nonce – A cryptographic term referring to an arbitrary value used only once in a transaction. The purpose of this will