Blockchain: An Analogy
A Bit More Technical

A Bit More Technical

Let’s clarify some things about our analogy:

First off, blockchains are pseudonymous. Accounts are identified only by pseudorandom strings of letters and numbers without any personal information. In order to verify your identity, you must enter a personal “password,” which is another random mishmash of alphanumeric characters.

Most blockchains are not anonymous (as with anything, there are exceptions). If someone finds out which account number corresponds to you, they can follow your entire financial history on the blockchain.

Blockchains are protected by heavy duty cryptography. To date, it’s some of the strongest the cybersphere has ever seen, and how it’s used prevents hackers from doing damage to the network.

People known as miners are analogous to the townspeople we mentioned–they go through the record of transactions to make sure everything checks out. Before they do so, their specialized computers do heavy cryptographic lifting that makes it very difficult to disrupt the permanent record of transactions – for more details on how this works, see Proof of Work in our in-depth section.

Miners are rewarded for their work with small transaction fees and newly minted coins (see Mining for more). This is how new bitcoins are created.

Why is it called blockchain? Let’s go back to our analogy:

Imagine the people of Cryptonia put more than one transaction on each piece of paper. When a page is filled, it is permanently added to the stack of papers, and the townspeople move on to the next piece. The pages are numbered, so that each piece of paper indicates which piece comes before it, inextricably linking them.

This new system lumps groups of transactions together. We call those groups blocks, and since they are connected to each other in a permanent, linear fashion, they form a chain. Block + chain = blockchain!

The people of Cryptonia use blockchain technology to verify financial transactions, but blockchains can theoretically be used to verify digital information of any kind.

The first blockchain created was the Bitcoin blockchain, but since then a number of others have popped up, each with their own modifications of the original. Some are currencies, while others allow for information storage, and still more are designed to allow others to build their own use cases on top of them. More on those later on.

All sorts of blockchain applications and improvements have been proposed since the advent of Bitcoin. Lots of other cryptos started to pop up, collectively referred to as altcoins.