Blockchain: An Analogy
A Bit More Technical

Blockchain: An Analogy

Teacup pig with teacup.

You live in a town called Cryptonia, which has very strange rules about how you can use money. If you want to make a transaction (let’s say you want to buy a teacup pig from your grandma), you have to announce your intentions to the whole town. 

They all know your complete financial history (you can't lie about how much money you have), and before buying anything you must first prove your identity.

Per town rules, you announce your intended transaction to everyone. You provide identification for yourself, and tell everyone the amount of money you’re going to give your grandma. 

If everything you say checks out (your identity is verified and you have enough money to buy the teacup pig), then your transaction is completed and recorded by the townspeople. You get a teacup pig, grandma gets some money, and that event is written down on a piece of paper.

The people of Cyptonia can check all town's papers.

The paper is added to a massive pile of papers that contains every transaction that has ever taken place in the town of Cryptonia. Anyone in the town can check the pile to see what has taken place and the papers are frequently checked by each townsperson individually.

Each person in the town verifies all of the above information independently, so there’s no need to trust one person in particular to check your honesty.

Fast forward 100 years. Cryptonia now has computers! So, instead of writing down transactions on a piece of paper, the townspeople write them on a public, digital file. Each person has a separate copy of this file on their computer, and the file is constantly updated with new transactions.

That’s not an easy situation to commit fraud in. No one can make transactions pretending to be you, since you have to verify your identity, and no one can pay for things they can't afford, since account balances are public. No one can fiddle with the digital file either, since everyone has a copy and would notice if yours is different. Cryptonia sounds like a lovely place to live.