The blockchain is …


The blockchain is described differently depending on who is speaking and in relation to which potential future application in what could be read as part of an excited speculative game to shape the future of the technology.

I will be collating various descriptions which will be published here shortly, in an attempt to map out how this process is being shaped and by who. (New terminology is highlighted in bold and can be looked up in the glossary).

This is my current working description of the blockchain:

A cryptographic and distributed method for arriving at a consensus about a linear sequence of changes to a given state of data.

Below is a walk through of how this is concretely implemented in the case of Bitcoin.

… comments and contributions, as always, welcome.


The blockchain – confirmation, mining and the creation of new coins in Bitcoin

In Bitcoin, the blockchain is a chronological chain of confirmed blocks of transactions in which the longest chain is always considered the most valid (after being checked by full nodes). The system functions as follows: Transactions are grouped into blocks to be confirmed and added to the blockchain by a miner. Mining is the task of solving a mathematical problem of finding what is called a nonce (some value) that when hashed with the block of transactions returns a number with a certain amount of 0s in front of it (see fig 1 below). This is then included in the header of the given block as what is called proof-of-work (one method among several for validating transactions or state change), which is the first confirmation of that set of transactions.

The difficulty of this problem is incrementally increased as computing power grows so that on average a block is solved every 10 minutes. Once the hash is found, the block of transactions is added to the blockchain. As a reward for this task of validating blocks, the miner receives a number of newly created bitcoins (the initial reward was 50BTC per block, which is halved every so often as the network grows, to eventually reach 0BTC when the set cap of 21 million bitcoins are in circulation, after which miners will be rewarded through transaction fees instead).



Fig. 1: Each block contains a set of transactions that when hashed with a “nonce” produces a hash number with the requirement that it begins with a certain number of 0s. Mining is thus the mathematical process of finding the nonce.

If there is a fork in the chain, in the event that two miners validate different sets of transactions, as mentioned earlier, the longest chain is always considered the most valid. What this means is that consensus is gradually arrived at, and a transaction might not be considered fully confirmed until six blocks have been added after it (recommended by Consensus on the validity of transactions is thus reached through mathematics and a distributed “competition” of mining with the economic incentive of being rewarded with a number of bitcoins and transaction fees. The distributed nature of the mining process also serves an important security function: if anyone would want to control the confirmation process, they would need to control <50% of the network of miners – a likelihood that decreases as the network grows.


Fig. 2: The longest chain in the blockchain is always considered the most valid, represented here by the blocks that are filled in. Read from left to right, the lighter blocks are the newer ones and thus less “confirmed”.

Finally, it is important to note that the security of the system rests on the cryptographic and distributed nature of the blockchain in which it is considered near impossible to retrospectively alter any information that has been confirmed. The mining process is therefore also an important aspect of the security of the system.

There are thus two types of distributed information in Bitcoin: the transactions, and the blocks that validate and confirm transactions (see fig. 1). The blocks on the blockchain do therefore not necessarily have to contain information about transactions, but could in fact contain pretty much any type of digital data, including bits of code that can execute functions. The blockchain has thus over the course of the past three years seen new innovation and experimentation for other possible applications beyond currencies, building on central aspects of blockchain functionality such as distributed consensus and secure chronological data entry. The blockchain can therefore also be understood as a cryptographic method for arriving at a consensus about a given event or state change in a distributed manner. This distributed method has several important variations, the most commonly know are proof-of-work and proof-of-stake, but other options such as proof-of-cooperation are also in development and signify the extent to which the method of distributed consensus embodies the values and desired processes of a given community.