To some people, the very act of having to explain Blockchain technology in the current year will feel like may feel nauseating. After all, “who doesn’t know about blockchain already?“. Other voices will utter more or less the same contempt, but for seemingly opposite reasons: They’re tired of hearing about blockchain, without having any interest in it whatsoever.

If you belong to any of the above groups, well… nothing. We’re still going to post this article, and find it useful and instructive to do so. And nothing is going to change our mind any time soon 🙂

You see, the blockchain, cryptocurrency – and the technology stack surrounding it – is still in its early stages of development, and the more nauseatingly abundant articles and posts like these are, all the more newbies can be made comfortable into what is to become their new home.

On the other hand, even the veterans of the numerous cryptocurrency wars and happenings that have occurred until now benefit from an ad-nauseum repetition of the most basic of fundamentals seeing as an increase in the supply of readily available links to redistribute back to their more indecisive friends and family leads to growth of the market share. Everybody wins.

As such, and in the spirit of hospitality, let us answer the most pivotal question of them all: Just what the heck is a blockchain?

«Ah, I get it! Like a “chain of blocks”! With each “block” being comprised of data, right?”

Exactly. Each block in the blockchain contains three things:

1. Transaction data: This is the information about the sender, the receiver, the amount exchanged, and at what time. For example: John sends 1 ETH to Mary on 4/09/2021 at 09:00 for her birthday.
2. A cryptographic hash: This is a unique string of letters and numbers used to identify the data in the block. If the data in the block changes, so does the hash.
3. A cryptographic hash of the previous block: Every time a new block gets added to the blockchain, it will contain the data of the previous blocks, identified through their unique hash. The only block not to have this is the first block in the chain known as the ‘genesis block’ as there is no previous block information.

How do blockchains work?

Blockchains need to form a consensus on the network so that the data is trusted and verifiable. This is referred to as the ‘consensus mechanism’.

Most cryptocurrencies like Bitcoin and Ethereum use Proof of Work (PoW). The main alternative to Proof of Work is Proof of Stake (PoS) — which is what Ethereum will upgrade to with ETH 2.0.

This is how the consensus mechanisms work:

Proof of Work

Computers known as ‘miners’ solve cryptographic problems to produce blocks. The miner that solves the problem first, shares the solution with others on the network. If the other miners on the network agree that the solution is correct, then a new block gets added to the blockchain. As a reward for getting the solution, the miner receives some cryptocurrency and any transaction fees for that block.

Proof of Stake

Instead of using miners, Proof of Stake uses randomly selected validators. A validator is someone that ‘stakes’ the blockchains native cryptocurrency to approve and produce blocks. Staking locks a validator into the blockchain and if they operate irresponsibly or maliciously they lose a percentage of their stake through slashing penalties.

What are the advantages of using a blockchain?

Since Blockchain is the technology powering the cryptocurrency phenomenon as we know it, to ask for the reasons for using blockchain is (almost) the equivalent of asking for the advantages of using cryptocurrency. However, there have been some efforts to build a cryptocurrency without blockchain.

There is a wide range of advantages of using Blockchain technology. Here are just a few: