Understanding the Blockchain

  • It is a decentralized public ledger for cryptocurrency transactions.
  • Transaction Information and exchanges are stored in a database called “Block”
  • Blocks are formed in a chronological order to keep track of digital currency transactions called “Blockchain”
  • All data exchanges are being recorded and kept in the blockchain.
  • Blockchains cannot be edited, adjusted, altered or changed.

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)

History of Blockchain

In 1979, Ralph Merkle patented the data structure called Merkle Tree which verifies data between computer networks. In a peer-to-peer (p2p) network, it is very important that no data was altered during transfer. Merkle tree data structure helped to maintain and prove the integrity of information and ensures that no false data is being shared.

Later in 1991, Blockchain was created using the Merkle tree data structure. A series of data records were connected and new blocks were added after each block. In the same way, chains of blocks were established, hence the name “blockchain”.

Satoshi Nakamoto published a white-paper called Bitcoin: A Peer to Peer Electronic Cash System in 2008. His paper asserted that he had solved the issue of digital-currency’s double-spending. The distributed database he propounded was a combination of cryptography, game theory and computer science. As a result, Satoshi’s creation enabled one (1) entity to transact directly with another entity without any trusted third party to stand between them. On the other hand, double spending is the idea of a digital currency spent twice in different places.

Since 2009, the Bitcoin blockchain maintains a chronologically-ordered, time-stamped transaction ledger of crypto-exchanges.

Double-Spending Eliminated

To illustrate the problem of double-spending, consider going to Starbucks and order a coffee worth $20. You pay in cash and handed over your $20 to the cashier. By all means, you cannot spend the same $20 dollar to make another purchase (Unless you steal it). After you pay for your coffee, the service provider confirmed your payment and you received your order in exchange for the money.

In the above illustration, the verification of your order was confirmed by another human. You paid for your coffee using a physical cash. In contrary, digital cash (like Bitcoin) possibility of double-spending without the blockchain technology is high. Anyone can copy the digital money and use it somewhere else.

How Blockchain works

Imagine a spreadsheet, replicated a thousand times across a computer-network. Then picture that this network is programmed to update the spreadsheet regularly. That is the basic principle of the blockchain.

  1. Blockchain records and keeps all data exchanges, commonly known as “ledger” in the crypto-world.
  2. Each exchange of data is called “transaction”.
  3. Transactions that are verified is added to the ledger as a “block”.
  4. It uses a distributed system to confirm each transaction, a peer-to-peer network of computers (nodes).
  5. Transactions that are digitally signed and verified are added to the blockchain and cannot be altered.

The newly added block is link to the block before it by using cryptography. However,  if alteration occurs in the previous block, the chain would invalidate the data in all blocks after it.

Blockchains are build on consensus. Vast numbers of computers are connected to the network and those adding to the blockchain must compete to solve a mathematical proof. As a result, this proof of work reduces the ability for an attacker to maliciously add transactions to the network. Furthermore, the solution must be shared in the network and concurred by the nodes, hence the term “consensus”.

The information stored in the blockchain cannot be controlled by any entity. Therefore, there is no need to rely on lone individual since the agreement was performed by many entities.

The good thing of this structure is that all transactions in the chain are publicly recorded, published and verified. As a result, events that were recorded in the blockchain can be viewed by anyone.

Peculiar Points

  • Blockchain is a distributed database among all nodes
  • No one controls the Blockchain
  • Transactions are validated by nodes
  • Blockchain is communicated via p2p network
  • Blockchain users are anonymous
  • All transactions that occur in the blockchain network is public and completely transparent
  • Once the blockchain has updated, that transaction cannot be altered
  • No institution or organization can shut down the blockchain

“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”
Vitalik Buterin, inventor of Ethereum


  1. https://blockgeeks.com/guides/what-is-blockchain-technology/
  2. https://www.investinblockchain.com/what-is-blockchain-technology/
  3. https://cointelegraph.com/bitcoin-for-beginners/how-blockchain-technology-works-guide-for-beginners#hash-function
  4. https://www.investopedia.com/terms/b/blockchain.asp
  5. https://www.forbes.com/sites/forbesagencycouncil/2018/04/05/what-is-blockchain-and-what-can-businesses-benefit-from-it/#72846e1e675f
  6. https://medium.com/hummingbird-ventures/a-brief-history-of-blockchain-an-investors-perspective-387c440ad11c
  7. https://bitcoin.org/bitcoin.pdf
  8. https://www.forbes.com/sites/bernardmarr/2018/02/16/a-very-brief-history-of-blockchain-technology-everyone-should-read/#60d43f397bc4
  9. https://coincentral.com/merkle-tree-hashing-blockchain/
  10. https://coinsutra.com/bitcoin-double-spending/



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