{"id":329,"date":"2017-08-05T22:55:27","date_gmt":"2017-08-05T21:55:27","guid":{"rendered":"http:\/\/coneixement.info\/blog\/?p=329"},"modified":"2017-08-05T22:55:27","modified_gmt":"2017-08-05T21:55:27","slug":"wtf-is-the-blockchain","status":"publish","type":"post","link":"https:\/\/coneixement.info\/blog\/wtf-is-the-blockchain\/","title":{"rendered":"WTF is The Blockchain?"},"content":{"rendered":"

The ultimate 3500-word guide in plain English to understand Blockchain.<\/h2>\n

U<\/span>nless you\u2019re hiding under the rock,<\/strong> I am sure you\u2019d have heard of Bitcoins and Blockchain. After all, they are the trending and media\u2019s favorite topics these days\u200a\u2014\u200athe buzzwords of the year. Even the people who\u2019ve never mined a cryptocurrency or understand how it works, are talking about it. I have more non-technical friends than technical ones. They have been bugging me for weeks to explain this new buzzword to them. I guess there are thousands out there who feel the same. And when that happens, there comes a time to write something to which everyone can point the other lost souls to\u200a\u2014\u200athat\u2019s the purpose of this post\u200a\u2014\u200awritten in plain english that any regular internet user understands.<\/p>\n

By the way, I am curator of a weekly newsletter, Unmade<\/a>, which delivers one idea from the future to your inboxes.<\/p><\/blockquote>\n

Blockchain: why do we even need something this\u00a0complex?<\/h3>\n

\u201cFor every complex problem there is an answer that is clear, simple, and wrong.\u201d\u200a\u2014\u200aH. L.\u00a0Mencken<\/span><\/p><\/blockquote>\n

Unlike every other post on the internet,<\/strong> instead of first defining the Blockchain, we\u2019ll understand the problem it solves.<\/p>\n

Imagine, Joe is your best friend. He is traveling overseas, and on the fifth day of his vacation, he calls you and says, \u201cDude, I need some money. I have run out of it.\u201d<\/p>\n

You reply, \u201cSending some right away,\u201d and hung up.<\/p>\n

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<\/div>\n<\/figure>\n
<\/figure>\n

You then call your account manager at your bank and tell him, \u201cPlease transfer $1000 from my account to Joe\u2019s account.\u201d<\/p>\n

Your account manager replies, \u201cYes, sir.\u201d<\/p>\n

He opens up the register, checks your account balance to see if you have enough balance to transfer $1000 to Joe. Because you\u2019re a rich man, you have plenty; thus, he makes an entry in the register like the following:<\/p>\n

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<\/div>\n<\/div>
The Transaction Register<\/figcaption><\/figure>\n

Note:<\/strong> We\u2019re not talking about computers only to keep things simple.<\/p><\/blockquote>\n

You call Joe and tell him, \u201cI\u2019ve transferred the money. Next time, you\u2019d go to your bank, you can withdraw the $1000 that I have just transferred.\u201d<\/p>\n

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<\/div>\n<\/div>\n<\/figure>\n

What just happened? You and Joe both trusted the bank<\/em> to manage your money. There was no real movement of physical bills to transfer the money. All that was needed was an entry in the register. Or more precisely, an entry in the register that neither you nor Joe controls or owns.<\/p>\n

And that is the problem of the current systems.<\/p>\n

To establish trust between ourselves, we depend on individual third-parties.<\/p><\/blockquote>\n

For years, we\u2019ve depended on these middlemen to trust each other. You might ask, \u201cwhat is the problem depending on them?\u201d<\/p>\n

The problem is that they are singular in number. If a chaos has to be injected in the society, all it requires is one person\/organization to go corrupt, intentionally or unintentionally.<\/p>\n

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  • What if that register in which the transaction was logged gets burnt in a fire?<\/li>\n
  • What if, by mistake, your account manager had written $1500 instead of $1000?<\/li>\n
  • What if he did that on purpose?<\/li>\n<\/ul>\n

    For years, we have been putting all our eggs in one basket and that too in someone\u00a0else\u2019s.<\/span><\/p><\/blockquote>\n

    Could there be a system where we can still transfer money without needing the bank?<\/p>\n

    To answer this question, we\u2019ll need to drill down further and ask ourselves a better question (after all, only better questions lead to better answers).<\/p>\n

    Think about it for a second, what does transferring money means? Just an entry in the register. The better question would then be \u2014<\/p>\n

    Is there a way to maintain the register among ourselves instead of someone else doing it for us?<\/em><\/strong><\/p><\/blockquote>\n

    Now, that is a question worth exploring. And the answer is what you might have already guessed. The blockchain is the answer to the profound question.<\/p>\n

    It is a method to maintain that register among ourselves instead of depending on someone else to do it for us.<\/p>\n

    Are you still with me? Good. Because now, when several questions have started popping in your mind, we will learn how this distributed register works.<\/p>\n

    Yes, but tell me, how does it\u00a0work?<\/h3>\n

    The requirement of this method<\/strong> is that there must be enough people who would like not to depend on a third-party. Only then this group can maintain the register on their own.<\/p>\n

    \u201cIt might make sense just to get some Bitcoin in case it catches on. If enough people think the same way, that becomes a self-fulfilling prophecy.\u201d\u200a\u2014\u200aSatoshi Nakamoto in\u00a02009<\/p><\/blockquote>\n

    How many are enough? At least three<\/em>. For our example, we will assume ten individuals want to give up on banks or any third-party. Upon mutual agreement, they have details of each other\u2019s accounts all the time\u200a\u2014\u200awithout knowing the other\u2019s identity.<\/p>\n

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    <\/div>\n<\/div>\n<\/figure>\n

    1. An Empty\u00a0Folder<\/h4>\n

    Everyone contains an empty folder with themselves to start with. As we\u2019ll progress, all these ten individuals will keep adding pages to their currently empty folders. And this collection of pages will form the register that tracks the transactions.<\/p>\n

    2. When A Transaction Happens<\/h4>\n

    Next, everyone in the network sits with a blank page and a pen in their hands. Everyone is ready to write any transaction that occurs within the system.<\/p>\n

    Now, if #2 wants to send $10 to #9.<\/p>\n

    To make the transaction, #2 shouts and tells everyone, \u201cI want to transfer $10 to #9. So, everyone, please make a note of it on your pages.\u201d<\/p>\n

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    <\/div>\n<\/div>\n<\/figure>\n

    Everyone checks whether #2 has enough balance to transfer $10 to #9. If she has enough balance, everyone then makes a note of the transaction on their blank pages.<\/p>\n

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    <\/div>\n<\/div>
    First transaction on the\u00a0page<\/figcaption><\/figure>\n

    The transaction is then considered to be complete.<\/p>\n

    3. Transactions Continue Happening<\/h4>\n

    As the time passes, more people in the network feel the need to transfer money to others. Whenever they want to make a transaction, they announce it to everyone else. As soon as a person listens to the announcement, (s)he writes it on his\/her page.<\/p>\n

    This exercise continues until everyone runs out of space on the current page. Assuming a page has space to record ten transactions, as soon as the tenth transaction is made, everybody runs out of the space.<\/p>\n

    \n
    \n
    <\/div>\n<\/div>
    When page gets\u00a0filled<\/figcaption><\/figure>\n

    It\u2019s time to put the page away in the folder and bring out a new page and repeat the process from the step 2 above.<\/p>\n

    4. Putting Away The\u00a0Page<\/h4>\n

    Before we put away the page in our folders, we need to seal<\/em> it with a unique key <\/em>that everyone in the network agrees upon. By sealing it, we will make sure that no one can make any changes to it once its copies have been put away in everyone\u2019s folder\u200a\u2014\u200anot today, not tomorrow and not even after a year. Once in the folder, it will always stay in the folder\u200a\u2014\u200asealed. Moreover, if everyone trusts the seal, everyone trusts the contents of the page. And this sealing of the page is the crux of this method.<\/em><\/p>\n

    [Jargon Box]<\/em><\/strong> It is called \u2018mining\u2019 on the page to secure it, but for the simplicity of it, we\u2019ll keep calling it \u2018sealing.\u2019<\/p><\/blockquote>\n

    Earlier the third-party\/middleman gave us the trust that whatever they have written in the register will never be altered. In a distributed and decentralized system like ours, this seal will provide the trust\u00a0instead.<\/p><\/blockquote>\n

    Interesting! How do we seal the page\u00a0then?<\/h3>\n

    Before we learn how we can seal the page, we\u2019ll know how the seal works, in general. And as a pre-requisite to it is learning about something that I like to call\u2026<\/p>\n

    The Magic\u00a0Machine<\/h4>\n

    Imagine a machine surrounded by thick walls. If you send a box with something inside it from the left, it will spit out a box containing something else.<\/p>\n

    [Jargon Box]<\/em> <\/strong>This machine is called \u2018Hash Function,\u2019 but we aren\u2019t in a mood to be too technical. So, for today, these are \u2018The Magic Machines.\u2019<\/p><\/blockquote>\n

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    \n
    <\/div>\n<\/div>
    The Magic Machine (aka Hashing Function)<\/figcaption><\/figure>\n

    Suppose, you send the number 4 inside it from the left, we\u2019d find that it spat out the following word on its right: \u2018dcbea.\u2019<\/p>\n

    How did it convert the number 4 to this word? No one knows. Moreover, it is an irreversible process. Given the word, \u2018dcbea,\u2019 it is impossible to tell what the machine was fed on the left. But every time you\u2019d feed the number 4 to the machine, it will always spit out the same word, \u2018dcbea.\u2019<\/p>\n

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    \n
    <\/div>\n<\/div>
    hash(4) ==\u00a0dcbea<\/figcaption><\/figure>\n

    Given the word, \u2018dcbea,\u2019 it is impossible to tell what the machine was fed on the left. But every time you\u2019d feed the number 4 to the machine, it will always spit out the same word, \u2018dcbea.\u2019<\/p>\n

    Let\u2019s try sending in a different number. How about 26?<\/p>\n

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    \n
    <\/div>\n<\/div>
    hash(26) ==\u00a094c8e<\/figcaption><\/figure>\n

    We got \u201894c8e\u2019 this time. Interesting! So, the words can contain the numbers too.<\/p>\n

    What if I ask you the following question now:<\/p>\n

    \u201cCan you tell me what should I send from the left side of the machine such that I get a word that starts with three leading zeroes from the right side of it? For example, 000ab or 00098 or 000fa or anything among the others.\u201d<\/em><\/strong><\/p><\/blockquote>\n

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    \n
    <\/div>\n<\/div>
    Predicting the\u00a0input<\/figcaption><\/figure>\n

    Think about the question for a moment.<\/p>\n

    I\u2019ve told you the machine has a property that we cannot calculate what we must send from the left after we\u2019re given the expected output on the right. With such a machine given to us, how can we answer the question I asked?<\/p>\n

    I can think of one method. Why not try every number in the universe one by one until we get a word that starts with three leading zeroes?<\/p>\n

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    <\/div>\n<\/figure>\n
    \n
    \n
    <\/div>\n<\/div>
    Try everything to calculate the\u00a0input<\/figcaption><\/figure>\n

    Being optimistic, after several thousand attempts, we\u2019ll end up with a number that will yield the required output on the right.<\/p>\n

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    \n
    <\/div>\n<\/div>\n<\/figure>\n

    It was extremely difficult to calculate the input given the output. But at the same time, it will always be incredibly easy to verify if the predicted input yields the required output. Remember that the machine spits out the same word for a number every time.<\/p>\n

    How difficult do you think the answer is if I give you a number, say 72533, and ask you the question, \u201cDoes this number, when fed into the machine, yields a word that starts with three leading zeroes?\u201d<\/p>\n

    All you need to do is, throw the number in the machine and see what did you get on the right side of it. That\u2019s it.<\/p>\n

    The most important property of such machines is that\u200a\u2014\u200a\u201cGiven an output, it is extremely difficult to calculate the input, but given the input and the output, it is pretty easy to verify if the input leads to the output.\u201d<\/p>\n

    We\u2019ll remember this one property of the Magic Machines (or Hash Functions) through the rest of the post:<\/p>\n

    Given an output, it is extremely difficult to calculate the input, but given an input and output, it is pretty easy to verify if the input leads to the\u00a0output.<\/p><\/blockquote>\n

    How to use these machines to seal a\u00a0page?<\/h4>\n

    We\u2019ll use this magic machine to generate a seal<\/em> for our page. Like always, we\u2019ll start with an imaginary situation.<\/p>\n

    Imagine I give you two boxes. The first box contains the number 20893. I, then, ask you, \u201cCan you figure out a number that when added to the number in the first box and fed to the machine will give us a word that starts with three leading zeroes?\u201d<\/p>\n

    \n
    \n
    <\/div>\n<\/div>\n<\/figure>\n

    This is a similar situation as we saw previously and we have learned that the only way to calculate such a number is by trying every number available in the entire universe.<\/p>\n

    After several thousand attempts, we\u2019ll stumble upon a number, say 21191, which when added to 20893 (i.e. 21191 + 20893 = 42084) and fed to the machine, will yield a word that satisfies our requirements.<\/p>\n

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    \n
    <\/div>\n<\/div>\n<\/figure>\n

    In such a case, this number, 21191 becomes the seal for the number 20893. Assume there is a page that bears the number 20893 written on it. To seal that page (i.e. no one can change the contents of it), we will put a badge labeled \u201821191\u2019 on top of it. As soon as the sealing number (i.e. 21191) is stuck on the page, the page is sealed.<\/p>\n

    \n
    \n
    <\/div>\n<\/div>
    The sealed\u00a0number<\/figcaption><\/figure>\n

    [Jargon Box]<\/em><\/strong> The sealing number is called \u2018Proof Of Work,\u2019 meaning that this number is the proof that efforts had been made to calculate it. We are good with calling it \u2018sealing number\u2019 for our purposes.<\/p><\/blockquote>\n

    If anyone wants to verify whether the page was altered, all he would have to do is\u200a\u2014\u200aadd the contents of the page with the sealing number and feed to the magic machine. If the machine gives out a word with three leading zeroes, the contents were untouched. If the word that comes out doesn\u2019t meet our requirements, we can throw away the page because its contents were compromised, and are of no use.<\/p>\n

    We\u2019ll use a similar sealing mechanism to seal all our pages and eventually arrange them in our respective folders.<\/p>\n

    Finally, sealing our\u00a0page\u2026<\/h4>\n

    To seal our page that contains the transactions of the network, we\u2019ll need to figure out a number that when appended to the list of transactions and fed to the machine, we get a word that starts with three leading zeroes on the right.<\/p>\n

    \n
    \n
    <\/div>\n<\/div>\n<\/figure>\n

    Note:<\/strong> I have been using the phrase \u2018word starting with three leading zeroes\u2019 only as an example. It illustrates how Hashing Functions work. The real challenges are much more complicated than this.<\/p><\/blockquote>\n

    Once that number is calculated after spending time and electricity on the machine, the page is sealed with that number. If ever, someone tries to change the contents of the page, the sealing number will allow anyone to verify the integrity of the page.<\/p>\n

    Now that we know about sealing the page, we will go back to the time when we had finished writing the tenth transaction on the page, and we ran out of space to write more.<\/p>\n

    As soon as everyone runs out of the page to write further transactions, they indulge in calculating the sealing number for the page so that it can be tucked away in the folder. Everyone in the network does the calculation. The first one in the network to figure out the sealing number announces it to everyone else.<\/p>\n

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    <\/div>\n<\/div>\n<\/figure>\n

    Immediately on hearing the sealing number, everyone verifies if it yields the required output or not. If it does, everyone labels their pages with this number and put it away in their folders.<\/p>\n

    But what if for someone, say #7,<\/strong> the sealing number that was announced doesn\u2019t yield the required output? Such cases are not unusual. The possible reasons for this could be:<\/p>\n