Bitcoin (BTC) brought us a revolutionary technology called blockchain when it was created in 2009. For some, the concept can be a little intimidating. The amount of jargon and slang alone is enough to terrify any newbie. However, once everything is broken down, it’s a lot easier than it sounds.
We know what you’re thinking: why is it called blockchain? Well, basically it’s called a blockchain because that’s exactly what it is: a chain of blocks.
Essentially, blocks are stacks of data that tell you everything you need to know about the transactions they contain. Mainly they store three types of data:
Details of a transaction – information such as date, time and amount for each exchange
Participants in a Transaction – Those who participated in a transaction, stored in the form of a unique “digital signature” (similar to a username) to protect personal information
Distinguishing Data – Data that distinguishes each block, called hashes
Each block on the BTC blockchain can store around 2-4MB worth of data. Although it doesn’t seem like much, 2-4 MB can accommodate a few thousand transactions (depending on the size of each transaction).
Now let’s get to the “chain” side of things. The chain in blockchain refers to the linking of all blocks. Once transactions worth 2-4MB fill a block, it is added to the blockchain. However, before it is added, it must meet certain criteria:
First the transactions have to take place. Without them there is no data for block storage. These transactions also need to be verified before being added to the block – this is where bitcoin mining comes in. The blockchain has a network of computers (miners) that verify the details of transactions: time of transaction, dollar amount, and its participants. After verification, all data is stored in a block where they join other transactions.
The other thing a block needs before it’s added is a hash (the data that distinguishes each block). In addition to the hash assigned to the new block, it also gets the hash of the previous one on the blockchain. This essentially ensures that the new block is not confused with the others.
Once this new block is added to the blockchain, it becomes public information. For this reason it is often referred to as the public ledger – anyone can see the details of the transactions.