What is a ‘blockchain’? All you need to know!

You’re likely to be aware by now that Bitcoin is an exciting business prospect – but what is it exactly that everyone’s so worked up about?

Well, the resurgence in buzz is actually more around ‘blockchain’ technology, the foundation principle that the Bitcoin currency is built on. A Google search for a quick 100-word overview of how a blockchain works has the potential to lead you down a 2-day rabbit hole as you strive to understand increasingly complex terms – so we’ve broken it down using some familiar examples.

Get ready to understand how blockchain technology has the potential to fundamentally change the world…

A distributed ledger

In 2008, the mysterious and elusive person (or potentially group of people) going by the name Satoshi Nakamoto defined how Bitcoin would work – and in doing so, created blockchain architecture as we now know it.

Imagine you’re creating a spreadsheet that needs to be updated by a team of people. You’ve got two options, for arguments sake we’ll say the first option is creating an Excel sheet on your own PC. You enter your information then send it to the next person in your team via email.

To do so you attach a copy. When they receive it, they download it, edit it, attach it again and send it on to the next person in the team. By the time it’s been around 8 people in your team, there are 8 copies and no record of who’s made which changes – and you’ve had to wait for it to be returned.

Effectively, this is how banks maintain their accounts and transfers now. They make a change, prevent any other changes being made – then inform the receiving account. When the transaction is confirmed, both accounts are amended and available to access again.

Option 2

So, if this first option is like creating and sharing a spreadsheet in 2001, imagine a blockchain distributed ledger as the 2017+ way of doing things.

Rather than creating a spreadsheet locally, you use a shared system like Google Sheets. You and your full team have access to it at the same time. Make an entry and it can be seen by your team in real time. There is only a single version of the spreadsheet, viewable and editable by all – and every edit can be attributed to the person making it.

what is a blockchain

Truly distributed

Now, the Google Sheets example is okay – but it doesn’t really do the ‘distributed’ part of blockchain technology the justice it deserves. Like this example, a blockchain cannot be controlled by any one person – but what’s more, there is no single point of failure.

That’s because every ‘node’ (a computer that is powerful enough to make changes or additions to the blockchain) actually copies the entire database at the same time as a change is being made. So, back to the example – not only are your team editing the sheet, they’re aware of every change that’s ever been made, because they’re taking backups every ten minutes.

Therefore, when a change is made, it’s referenced against all this ‘backup’ verification information right across the network. This means there is zero chance of missed transactions, human errors, machine errors or fraudulent transactions.


It’s a big claim, suggesting a means of administering money has zero chance of falling foul to fraud – but in the case of Bitcoin and its underpinning technology, it’s so far proved to be true – and it’s primarily because of the transparency of the architecture.

Although people suggest Bitcoin is anonymous (hence the media hype about it being the criminal’s currency of choice) it’s actually not. Every transaction is logged and can be viewed by someone who understands what they’re doing – being as though the entire blockchain is copied and updated every ten minutes by the multitude of node computers that support the system.

Where Bitcoin fraud does appear in the media, the issues are never to do with the underlying technology – and always down to human error handling the unique code that represents the currency.

In theory (and it is a far-fetched theory) it would be possible to alter or override the entire network – although experts suggest this level of computing power is unobtainable. Not only is the power needed out of our hands currently – but taking control of a blockchain would render the system worthless – akin to completely destroying a shop in an effort to secure a credit note that can only be spent there.

Nodes and mining

The node computers referenced don’t just keep the blockchain alive, they grow it. Nodes are extremely powerful machines – and they’re used to add transactions to the ledger.

This process is referred to as ‘mining’ – essentially because taking part in the verification process has the potential to reap Bitcoins (or the other cryptocurrency that’s underpinned by the system) as a reward for solving the complex computational task for building these ‘blocks’ of transactions that make up the blockchain.

Free from centralised control

The nodes that are used are engaged in maintaining and growing the blockchain voluntarily – and anyone (with the equipment and ability to power it) can take part. Because of this, the system is truly ‘decentralised’ – i.e. free from the control of any government or organisation.

This concept of decentralised administration is one of the things that excites people so much about the potential of blockchain technology. There are millions of potential uses that remove a middleman from any transaction – it’s already being used experimentally to administer the sale of diamonds around the world – and some countries are using it as an underpinning for their land registry records.

A new level of network

Essentially, a blockchain creates a new level to the internet – a type of connectivity and processing that was unimaginable in the early days. Every time blockchain technology is used, it goes to further prove how robust and secure the system is.

The technology isn’t quite there yet – but it’s not far away. Blockchain tech could revolutionise the way we do a great number of things, file storage, auditing, the finance markets, personal identity management – even voting for our governments and leaders.