Explain Blockchain Like I'm 5
A blockchain is a record of information, that lets you trade with anyone, without the need to trust them or rely on another organization, like eBay and PayPal for example, to do so. So if you want to sell your laptop, you can do it directly on a blockchain, without needing anyone else, meaning you save the transaction fees that you would normally have to pay.
But the uses of blockchain are not limited to buying and selling, any type of information can be recorded on a blockchain.
The data that is recorded is copied onto lots of different devices that are connected to each other to form a network. Whenever any new information is added, all of the devices are updated straightaway. So even if one device were to lose some information, the data would be safe and sound on another device, in a completely different location.
This is different to how information is recorded today because normally all of our information is stored on one big computer, rather than on lots of smaller ones in different places. The identity of everyone on a blockchain is hidden behind special addresses (like email addresses, but completely random numbers and letters instead), these are produced through cryptography. You can see what any address has been doing if you know the numbers and letters that make up a particular address. Although anyone can have as many addresses as they want. This helps to make blockchain private.
When using blockchain technology you have a public key and a private key, both of which appear as strings of random numbers and letters. Think of your public key as your email address and your private key as your password. It is very important that you never share your private key with anyone. It is also very important that you have your private key written down (ideally on a piece of paper) in a safe and secure place. There is no “I Forgot My Private Key” option in blockchain technology. If you lose your private key, you lose anything associated with it.
So we now know that blockchain is not a company, it provides privacy and that it is not one big computer storing information. But why does that make it so special?
What is a Blockchain?
When information is added it is packed into blocks, which are packages of information linked in a chain of similar blocks of information. This is where blockchain gets its name from.
Blockchain is special because all of the information that is added creates a special code that everyone can see and check to make sure that the information is what it should be. Every time more information is added to the chain that code changes to show that this has happened. So, if anyone tried to change the data that is already recorded on a blockchain, it would spoil that code and everyone would know about it. Because of this all of the information on a blockchain is always true.
The challenge that blockchain solved is getting all of the different devices on the network to agree when any information is added, without letting anyone cheat the system and add whatever they wanted to. This is done through complicated computer programs that reward the people who have devices that work hard on recording the right information onto a blockchain. The rewards come in tokens, called cryptocurrencies, like Bitcoin or LSK tokens, which are built on a blockchain and can be bought and sold for money, like US Dollars or Euros.
As nothing that is recorded on a blockchain can be changed it is absolutely important to be absolutely sure where you are sending money when doing it, as once it is done it is sealed and cannot be reversed.
So to recap:
- Blockchain is a public ledger of any type of information.
- Cryptocurrencies are built on blockchain technology.
- The information recorded on blockchain is stored in lots of different places at once so it’s always safe, this is known as a P2P network.
- The identity of everyone who uses blockchain is hidden behind random numbers and letters, through cryptography.
- Blockchain is kept honest through special computer programs that reward people who keep it honest, these are known as consensus protocols.
- The information is always true because of special codes that show if anything is changed when it shouldn’t be, so you can alway believe what you are looking at thanks to hashes.
- Blockchain is special because it means you can deal with anyone without the need for a big company telling you who you can or cannot trust. This allows for a new, trustless system and world.
- Blockchain is distributed and decentralised, making it cheaper, faster and more secure than any centralised system.