The blockchain, explained to my dog.

Grays, my dog.

Blockchain. How many times have you heard of this term without really understanding what it was? Or maybe you don’t even know what you’re talking about. If you, like many others, would like to understand more about this topic but you don’t have a lot of technical knowledge, then this article is for you.
The title “The blockchain explained to Grays”, in fact, contains the desire that these few paragraphs on the subject can be understood by anyone, even by my dog (which you can see on the cover while staring at his next prey). I would also like that, once the reading is over, you could explain to others what you have learned, so that they too can deepen their knowledge on this subject.
Before I start, however, I would like to retrieve from your mind some basic concepts of how the world of current accounts works now.

Bank accounts

As you probably already know, you’re just a number to the banks. And I’m not kidding, it really is! You are your bank balance. What do I mean by that?

To make it very simple, let’s consider a bank as if it was made up of one person sitting at a table. This person has only two things in his possession: a sheet of paper with a table made of two columns, and a pen. To open a bank account, all you have to do is to go to this person and give him your name. At this point, all this person will do is add a line to the table by writing your name on the left and a nice zero on the right (your initial balance). When you want to make a deposit, you go to the banker and give him the money to deposit. He will update the number next to your name by adding the amount you gave him. Conversely, in the case of a withdrawal, he will deliver the money to you by subtracting the required amount from your balance. That’s how a bank works in simple terms.

Probably, having said that, you will be asking yourself a question:

Who can assure me that the banker, because of his personal interests, does not change the balances of people who have an account with his bank?

I’d say that’s a more than legitimate question, and that’s the point. No one, ideally, can prevent a bank from changing the balance of its account holders. In reality, this does not happen for obvious reasons, but other things could lead to problems for account holders. Take, for example, the case of Venezuela, an entire state that has gone bankrupt and has led to the collapse of all banks and therefore the loss of virtually all the money of all account holders.

As you can imagine, all these scenarios in which you are the injured party have in common a single cause that allows such developments: the banks (and, above them, the states) represent a centralized power. Whether you like it or not, you can only submit to the decisions taken by these actors, always hoping that they will protect you.

The Decentralization

As mentioned above, no one prevents the banker from changing his balance for personal gain. So how can we solve this problem? A very simple solution is to make the account balances’ register public. If everyone has access to this register, no one will be able to change their balance without others noticing it. In addition, we can change the definition of balance in the following.

We define a balance as the sum of the movements made by a person.

Let’s take the example where there are four people at stake:

• Alice with a balance of 100€
• Bob with 50€
• Carl with a balance of 25€
• David owns nothing (0€)

All these initial balances were derived from one transaction per person, namely the initial deposit transaction.

Now, let’s say that Alice wants to transfer 50€ to David. Since everyone has access to the transaction register, and since the others have to validate this particular movement, what will happen is the following:

• Alice will make public her willingness to transfer 50€ to David
• Bob will see Alice’s request and, once he has confirmed through the public register that she can actually transfer that money, he will confirm the transaction.
• In turn, Carl will do the same and he will also validate the transaction.
• Once both Bob and Carl have both validated the transaction, the register will be updated for all and a new copy of this register will be distributed to all participants.

Once these four operations have been completed, we will find ourselves in the condition in which everyone will have access to a register containing one more transaction than before. To calculate the new balance of Alice what you need to do is to add together the two transactions that interest you:

1. + 50€ (deposit)
2. - 50 € (sent to David)

As you can guess, this system has a very important strength: no one is able to change their balance in an opportunistic way without asking for confirmation from others. It is, in fact, impossible to cheat. This system therefore shifts responsibility from one person (the banker in the first example) to the other by putting him in the hands of all the participants in the network. Power becomes decentralized in this case.

The Blocks

At this point, you may be thinking, “Okay, nice system. But this blockchain, what the hell is it?”. I’ll get there now, but first let me continue the example.

A few years pass, and our network initially composed of 4 people suddenly expands, attracting the curiosity of many other individuals who want to use a fair system for the exchange of money. What happens in this case? Very simple, the transactions between individuals suddenly become very numerous and having to confirm each transaction before processing the next one suddenly becomes too difficult. To solve this problem, we decide to get smarter: every time 10 transactions are produced, we take them and put them into a package. In this way the number of validations will be much lower (1/10th in this case), even if slightly more difficult (10 transactions will have to be verified at each validation, and not just 1). In this way we have created the first piece of the new technology, the block.

A block is nothing more than a series of transactions packed together to make it easier to validate them.

The chain

At this point, I’d like to ask you a question and see if you’ve got it all figured out so far.

What happens if you invert two blocks even if they are far apart?

As you can easily guess, this would be a big problem. If people’s balances are given by the sum of the transactions they have made, switching two blocks of transactions between them would almost certainly lead to a change in the balances themselves. To give an example, let’s take the following case.

• At block 1, Alice has a balance of 50€
• At block 2, Alice receives 20€ from Bob, and her balance becomes 50 + 20 = 70€.
• At block 3, Alice sends 60€ to Carlo, and his balance goes to 70–60 = 10€

Now, for a freak of nature, the public register changes and blocks 2 and 3 are reversed. By doing so, at block 2 Alice will own 50–60 = -10€! With a simple change, its balance is magically become negative, making all transactions from block 3 onwards invalid!

To avoid this problem you could insert a new system that allows you to link the blocks together so as to prevent two of them from being exchanged.

The chain is nothing more than a system that prevents transaction blocks from being moved from their original location.

This system, although very complex, can be summarized in a very simple concept: through a particular mathematical function, each block is given an identifier that depends on the previous block. If we moved a block and retraced the chain from the beginning, we would find that something was wrong, since the identifiers would not be correct at some point. The procedure by which the whole chain becomes invalid is called invalidation.

The blockchain

After seeing what is meant by the term block and what is meant by the term chain, putting together the two definitions to create a new one is quite immediate.

The blockchain is nothing more than a distributed transaction log. Within it the transactions are grouped into blocks that are in turn linked to each other to form a chain.

Ultimately, therefore, this new technology allows anyone who wants to transact money without being subject to the restrictions of entities such as banks. It is therefore not difficult to understand how this new system could change the world as we live it now. Think in fact of the possibilities that would open if anyone who wanted to exchange money could do so in a matter of seconds, from one part of the world to another, without paying any commission and without having to submit to any rules. It would be as if anyone had access to a system like PayPal but without the obligation of having an account or owning a bank account. It would be revolutionary, to say the least.

Last but not least, there is a clarification to be made. We started talking about money and we ended up defining what a blockchain is. In the meantime, however, I have voluntarily skipped a small step: what you can exchange through the use of the blockchain is not cash (euro, dollars, …). What is exchanged through the use of this technology are the cryptocurrencies, a term composed of the crypto prefix that identifies another component at the base of this system (cryptography) and the suffix currencies to identify something that, for a group of people (i.e. the users of the blockchain itself) has a value.

Not just money

Let’s summarize all that we’ve seen so far.

The blockchain allows you to keep track of your users’ balances in a decentralized way. It is basically an immutable distributed registry that keeps track of the transactions of the people who use it. But is it really just that?!

Actually, no. The blockchain can be used to record any type of transaction, but I deliberately avoided talking about this point until now because I want to keep it for another article. In fact, entering this world, we would inevitably end up talking for hours, even touching on very technical issues. For this reason, I wrote a second piece named “Bitcoin, Ethereum and the Blockchain 3.0, explained to my dog”. Within it I wanted to make a comparison and a description of Bitcoin, Ethereum and the new blockchain that are emerging in recent years. All of this, of course, in terms as simple as possible so that everyone can easily understand what we’re talking about.

Conclusions

I hope that the concept of blockchain is a little clearer. If not, it means that I have failed. In this case I would be happy to modify this article incorporating your suggestions (you can get them through Twitter).
If instead this explanation was useful to you, I invite you to share it with your friends, relatives or animals so that they too can learn about what lies behind the term now so widespread and at the same time dark which is that of blockchain.