The short answer
A blockchain is a shared digital record of transactions and information that a network of computers can maintain, rather than one central organization controlling it. Information is grouped into blocks and those blocks are linked in the order they happened, which is where the name comes from, and the network has a process for reaching agreement without relying on one central administrator. Viv is equally clear on the limit, because where one organization already controls the system and nobody else needs to verify the same record, an ordinary database may be faster, cheaper and simpler.
Viv's answer
Transcript5:08 · lightly edited
The question
Hi, and welcome to Ask Viv, where I answer your cryptocurrency questions simply and honestly. Today's question is: what is blockchain?
The word you keep hearing
You've probably heard the word hundreds of times. Bitcoin uses blockchain, Ethereum uses blockchain, companies are talking about blockchain, governments and financial institutions are exploring blockchain. But what actually is it?
The simplest way I can explain it is this. A blockchain is a shared digital record of transactions and information that can be maintained by a network of computers rather than being controlled by one central organization. Blockchain underpins all crypto movement and also so much more.
So let me break that down.
Start with your bank
Think about a traditional database. Imagine your bank has a digital record showing how much money you have. The bank controls the record. If you transfer $1,000 to someone else, the bank updates its records. You don't personally control the bank's database. You trust the bank to maintain an accurate record.
Now imagine there isn't one company maintaining that record. Instead, you have a network of computers all around the world maintaining a shared version of the record. That's where blockchain becomes interesting. Rather than one central database controlled by one organization, the network collectively maintains the record.
Why it's called a blockchain
Why is it called a blockchain? The name comes from the way information can be organized. Transactions or other pieces of information are grouped into blocks. Those blocks are then connected together in chronological order, creating a chain of blocks. Hence the name blockchain.
Once information has been recorded and confirmed by the network, changing historical information can be extremely difficult if it can be done at all, depending on how that particular blockchain is designed. This creates something very useful. A shared record that participants can verify without necessarily having to rely on one central authority.
Agreeing without anyone in charge
How does everyone agree? That's an obvious question. If there's no single organization in charge, how does everyone agree on what's true?
That's where something called a consensus mechanism comes in. Different blockchains use different approaches. Bitcoin, for example, uses proof of work. Ethereum uses proof of stake. These systems allow the network to agree on which transactions are valid and what the current state of the blockchain should be, the balance.
You don't necessarily need to understand all the technical details to understand the important point. The network has a process for reaching agreements without relying on one central database administrator.
Why this matters
Why does this matter? This is where blockchain becomes more interesting than simply being the technology behind Bitcoin.
A blockchain can potentially allow people and organizations to transfer and record value digitally without relying entirely on traditional intermediaries. That could include money, digital assets, ownership records, financial instruments and other forms of information.
It can also allow software to interact with assets through something called smart contracts. That's one reason blockchains such as Ethereum can support entire ecosystems of applications rather than simply recording payments.
Blockchain and cryptocurrency
Blockchain isn't really the same thing as cryptocurrency. Cryptocurrency is one use of blockchain technology. Blockchain is the underlying infrastructure.
Blockchain isn't magic
But blockchain isn't magic. So one final point. Blockchain isn't automatically better than a traditional database. If one organization already controls the system and there's no need for multiple parties to share and verify the same record, a traditional database may be faster, cheaper and simpler.
The real value of blockchain comes when multiple parties need to coordinate, share a record, transfer value or establish trust without relying on one central authority.
If you remember one thing
So if you remember one thing from this, blockchain is essentially a way of maintaining a shared, verifiable digital record across a network. And understanding that idea is the foundation for understanding almost everything else in crypto.
Closing
With that, remember, if you've got a cryptocurrency question you'd like me to answer, I'd love to hear it. Please leave it in the comments section below. Thanks for watching, and I'll see you in the next Ask Viv.
Worth knowing
A blockchain is not automatically the right tool. Where one organization already controls the system and nobody else needs to share and verify the same record, a traditional database may be faster, cheaper and simpler. Viv puts that limit in the same episode that explains the technology, which is not how most explainers handle it.
He names smart contracts as one reason a blockchain such as Ethereum can support whole ecosystems of applications rather than simply recording payments, and leaves the term itself for another day.
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