What is Blockchain?
A blockchain is essentially a public ledger that stores the complete history of every action ever recorded on the specific network. Transactions, information, or actions are bundled into "blocks" and posted chronologically to the chain as they are generated. The blockchain is maintained by nodes or interconnected computers on the network that execute mathematical algorithms in order to form a block. Once a block is validated by the nodes, it is posted on the blockchain and a new one is created. Since the data is encrypted it looks like jumbled code that is really disguised information.
For a blockchain to work, it needs to have 3 essential pieces:
1. Private key cryptography as a virtual identity
One of the most important uses of a cryptocurrency is the ability to allow users to transact on a decentralized network, regardless of location. When two people wish to transact over the internet using a blockchain, they need a private key and public key. This combination creates a secure digital identity that doesn't require sensitive information to access.
The public key is what is used to send and receive payments. These payments are secured as yours through your private key, which you keep secret.
Public key + Private key = proof of ownership or digital identity
2. A distributed network with a shared ledger
If you don't witness something happen, how do you know it happened? This is a problem that blockchain technology was able to solve.
Instead of having a central source report what many witnessed, much like the media today, a blockchain uses the entire network to ensure the validity of a block. Once the majority of nodes reach a consensus that they witnessed the same thing at the same time through math, the block is added to the chain.
When combined with private and public keys, users are able to securely transfer value and information over the blockchain which is then validated by those connected to the network.
3. Protocol and incentive
For each blockchain, a different set of rules is established for what is and what is not a valid transaction. This is its protocol. These are usually listed on white pages where start-ups list out their venture, goals, timeline and other essential data.
The protocol also lists ways to be compensated for running a node. This incentive is called "mining". This is when you offer your computing power in order to help secure the network. These miners basically use software to sort through mathematical puzzles until they land on the solution. Whoever solves it first and posts it to the blockchain for the other nodes to verify, is rewarded the coin.
The goal is to eliminate double spending which could be compared to cashing the same check twice at different banks.
Miners vote with their computing power, coming to a consensus to whether a block is valid or not. When the majority of miners arrive at the same solution, the block is added to the chain and a new one is generated. You can read about mining in depth here.