Demystifying Bitcoin #002 What is a blockchain?

In last week's newsletter we left off with an anonymous person calling themselves Satoshi Nakamoto. This person (or people 🤷) had just shared a document called a "white paper" that explained how it could be possible to have peer to peer digital currency that's similar to cash but couldn't be taken away from you by any government. This idea instantly resonated with the small group of cryptographers and Satoshi got to work building a prototype.

One of the main concepts to understand about Bitcoin (and many cryptocurrencies that have come since then) is the concept of a Blockchain, but first let me describe how transactions work.

Transactions are simply one person sending Bitcoin to another person

It's perfectly ok if the image above makes no sense to you! At the very least you can see that there are 3 boxes (Transactions) which have arrows coming out of one side of them and into the next box. Each of these is simply a transaction like if I were to pay you for picking up a coffee for me. Notice the terms "public key", "private key", and "signature". These three things are used in order for you to securely send bitcoin to another person. For example, if I wanted to send you $10 through PayPal, I would need to login to PayPal with my username (Public Key) and password (private key). I would then get your PayPal username (Your public key) and send $10 to you. When I hit the "send" button on PayPal's app that is similar to me signing off (Signature) on that transaction. Now all of these transactions by people get rolled up into a Block containing many transactions by people. Each block of transactions uses a math concept called hashing1 in order to give each block unique name. Each block's unique name is then used to set up the next block. This is so you can follow and verify that all the blocks have not been tampered with by some hacker somewhere. So now you can imagine that all of these blocks are chained together by the previous blocks unique name, and we now have a Blockchain!

Each block contains transactions and the unique name of the previous block

That's enough for this week. If you're feeling brave you can play around with this blockchain simulator that's very useful for understanding hashing, blocks, and blockchains. In the next newsletter I'll discuss Mining, what it is (not guys with picks and shovels) and why it's needed.

If you're enjoying this newsletter and know someone who's interested in Bitcoin, but needs it explained in simpler terms forward this to them. They can also start here to get caught up quickly.

Hashing or a hash is a way of taking a bunch of numbers, letters, or words and turn them into a different sequence of characters. A very very simple example: A hash of a sentence like "Dylan was born on Sept. 1st 1986" could be as simple as "dylanbirth09011986" which is shorter and more concise.

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