The Blockchain Simply Explained


Blockchain refers to a distributed digital ledger of financial transactions. It is comparable to any other database that allows for a recording of economic transactional input but unlike in most others, this input can be made by numerous different parties and all the persons involved are able to keep track of changes even as they are being made to the database.

Additionally, for any ledger entry to be made, it requires the approval of all members of the group operating it. This is also unlike many transactional ledgers that usually just require the approval of a single central authority in order for changes to be made. The record made on this type of network is permanent and cannot be altered once it has been confirmed and published.

A blockchain network operates across a number of computers in a peer-to-peer network and it is only after all the existing parties have validated one transaction that the next entry can be made. Every new entry or block is linked to the previous one using a signature and participants use complex algorithms to verify these signatures before making a validation.

This makes it possible for complete strangers to transact without fear and excludes the need for a central governing party in their transactions.

From the above description it is clear that for a transactional network to qualify for this title it has to meet two distinct criteria: transparency and decentralization.

Important Terms Related to Blockchain

  • Bitcoin
  • Many newbies use the terms Bitcoin and blockchain interchangeably but these are two very different things. Bitcoin refers to the first native digital currency used in value transactions and blockchain is the backbone behind its use. While money has long held this position, an attempt at providing a suitable and trustworthy digital alternative had not been successful prior to its invention.
  • Blocks

These are individual entries made into the common database. A block is usually created after all the servers in a particular transaction, also referred to as nodes, reach a point of agreement and as such validate an entry. After validation takes place, the new block is then connected to a previous one (back-linking) in order to create a chain and to confirm authenticity. It is permanently time-stamped and cannot be altered.


  • Miners

These are machines that solve complex mathematical problems and receive financial rewards in cryptocurrency form in exchange. They are authorized to confirm the validity of new transactions and add them to a chain in order to ensure the security of transactions carried out within the network.


  • Smart Contract

This is a programmed set of instructions used as a framework for conducting exchanges. It operates much in the same way as lawyers do, accepting payment in exchange for a proposed set of rules within which to conduct specific business. It is entirely computer-controlled and just like in an ordinary contract, failure to abide by the set requirements usually results in a penalty.

The entire process is automated and thus eliminates the need for a third-party. So long as the conditions are met then the contract is executed to the letter.


  • Blockchain Scaling

While it has always been the case that every individual blockchain transaction is verified by every single computer in the network, the scaling concept seeks to simplify things without compromising on security. Scaling involves making an assessment of the minimum number of computers that would be required to make a verification of each transaction handled. It also divides up the work among the available computational resources.

This is a relatively new innovation to the concept and is still at the initial stage as it presents unique challenges that seek to retain the security of the network and its operations.

A Historical Perspective on Blockchain Technology

The Bitcoin

The blockchain technology first came into existence after the birth of Bitcoin in 2008. From that time it has grown greatly both in form and function to include numerous types of financial transactions. Bitcoin was initially an experiment in digital currency that has now grown to have a market capitalization of more than US$ 20 billion, although it moves around a lot!

It was the first cryptocurrency and its creation and use is what necessitated the invention of blockchain as the supporting digital framework. It was for a long time the most popular virtual currency and still ranks high on the world’s top digital currency list.

Blockchain Technology Explained

Blockchain technology explained in simple terms is the democratization of records management and currency transfer between parties in a network. The entire process is conducted in public and is therefore monitored. There have been relatively few incidences reported with regard to security on this framework.

In fact, one of the aspects that made the use of blockchain extremely important to the Bitcoin transaction is the level of security that it affords. The cryptography behind it is so powerful that it has been proven to be almost completely tamper-proof.

The various computers forming a blockchain network act as nodes for the particular network. Every transaction on the network is assigned a digital signature that is executed using public key cryptography which comprises two keys and is almost impossible to crack. All data on new transactions made are immediately distributed to each node on the network so that each individual database remains up to date. Once the different nodes on the network reach a consensus then the update is made and the new entry reflects as a block on the chain.

This marks a very important distinction between a blockchain transaction and one carried out on ordinary distributed databases. While the latter usually gets updates on a scheduled basis in order to synchronize various modules on disparate databases, the blockchain concept is emergent because the update is made any time so long as the relevant parties have agreed on it.

Mining creates new blocks and the cycle is repeated on intervals. For instance, the Bitcoin blockchain has a mining schedule of 10 minute intervals. The mining process involves an attempt at solving a complicated mathematical puzzle within a competitive setting with other miners. This is mostly carried out on massive pooled computer resources as a single home computer is not capable of cracking the extremely difficult puzzles.

A Historical Milestone

The most significant point in blockchain history is the point at which investors realized that its use did not have to be limited to the Bitcoin transaction network for which it was initially created. From that point on, dynamic individuals and organizations set out to embrace its applications on every possible platform. This led to the rise of diverse forms of the digital network applicable to different contexts.

  • Public Blockchain – This is one on which every existing member is able to participate fully in posting transactions and in the verification process. The most popular ones here include Bitcoin and Ethereum.
  • Private Blockchain – This is one whose operations are limited to organizational boundaries.
  • Consortium Blockchain – The consensus process on this type of network is assigned to specific pre-selected members.

However, there has been a lot of debate on whether the private and consortium blockchains really qualify for the title. This debate stems from the fact that blockchain explained required the satisfaction of two basic tenets: transparency and decentralization. While these two varieties seem to go against the basic tenets that form the blockchain foundation, there could be a justification to the method they employ.

One argument suggests that these varieties are still at the innovative stages and once they mature, they will meet all the requisite conditions outlined. This suggests that the concept is gradually applied to an existing database and it gradually makes a complete replacement, one step at a time.

The Rise of Ethereum Blockchain

One of the developers, Vitalik Buterin, who participated in the initiation of Bitcoin took the digital currency concept to the next level by studying its shortcomings and coming up with an improved version. Ethereum was designed to offer certain options that were not available on the Bitcoin platform.

First, whereas the Bitcoin blockchain was only meant to maintain a record of transactions, the Ethereum blockchain presented the unique opportunity to make transfers as well as keep records of assets. This led to the birth of smart contractsthat would automate previously tedious processes using programming codes.

Second, this network features a digital asset that has been a huge magnet, drawing investors by their numbers to this platform. Ether is the medium that allows programmers to run their software on this platform and is usually purchased in much the same way as one would purchase fuel for their automobile to keep the engine running.

These two important aspects when combined with the coding flexibility that this novel network offered have been a major force behind the rapid growth of the Ethereum blockchain. The main challenge facing it is that with the level of openness that it presents. It is a much easier target for hackers than Bitcoin and if it were to be compromised then investors would have to deal with a major blow.

The Blockchain Wallet: A Promising Trend

The blockchain wallet is a digital platform on which a user can trade in virtual currency (mostly bitcoin) with ease. It is used within the currency’s network and presents the rare advantage of operating virtual cash without the fear of having central server compromised and identities stolen since the process is decentralized.

Various blockchain wallet platforms offer different features like the personalization of Bitcoins, debit card services, key generation and the ability to make electronic payment transfer. It is also possible for users to manage their various digital assets on these platforms.

But the general role they are all basically designed to carry out is comparable to that of a bank since unlike hard cash, virtual currency has no other storage option. Therefore, it is on these digital platforms that the virtual cash, private and public keys and account balance information will be stored.

It is only recently that the blockchain wallet technology expanded to feature the inclusion of Ethereum wallets. While the use of the blockchain wallet was initially limited to currency transfer, we very soon expect to see its use include the transfer of anything else that can be digitized.

Blockchain companies are always on the lookout for opportunities to design new innovations and transform the financial sphere and the way business is normally executed. Both startups and incumbents seek ways to make transactions easier, faster and more transparent. The blockchain wallet was a key innovation in this regard and a lot more is to be anticipated within its domain and also in related product and service provision.

The Future of Blockchain

When it comes to the creation of the world’s most revolutionizing concepts like the internet and the various protocols that keep it alive and running, the founding fathers did not make as much financially as do the everyday technologies we have now which build platforms based on these protocols.

Blockchain has sought to evade this eventuality by weaving significant financial incentives into its very core layers. Developers are motivated to grow the various networks because the tokens they hold grow in value as the networks expand and demand increases.

This distinct incentive structure makes it a highly appealing platform for open-source application developers and presents limitless opportunities for innovation. It has also opened up mankind to a whole new level of accountability and eliminated the all-too-common human error factor.

As the world gets more users of blockchain, we can expect to see more individuals adapting to the use of the blockchain wallet and financial institutions using the digital network as a replacement for traditional databases.

Blockchain companies will also continue to thrive and offer innovative products and services related to the use of this technology. This will lead to overall efficiency and significant cost reductions as the current over reliance on third parties is completely eliminated.

Information from several sources

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Steve Kanaval Portfolio Manager (Digital Currency) Ault & Company teve began his career in the Trading Pits in Chicago making markets at the Chicago Mercantile Exchange (NYSE:CME) the Chicago Board of Trade and the CBOE in the early 80’s. He ran the Morgan Stanley Derivative Prop Trading for the firm specializing in Index Arbitrage. He continued his career as a Trader/Portfolio Manager for multiple Hedge Funds during the Internet Boom of the 90’s managing large portfolios. Steve is known as an expert in MicroCap Technology Stocks and the emerging Digital Currency markets as a Portfolio Manager for his Family Office. Steve has managed portfolio’s in volatile asset classes for 3 decades as a commodity trader, hedge fund manager and digital currency trader and miner. Steve is one of the few managers who publishes his views on the asset classes in a public forum and has published more than 10,000 articles simplifying these complex and volatile assets for readers. His work is published on multiple sites including Bloomberg,,, CryptoCurrencyNews as a paid contributor. Ault & Company is a private diversified holding company identifying undervalued public & private companies and disruptive technologies that executes strategies to achieve an above market rate return and liquidity for investors while measuring impact and sustainability principles of their disruptive technology and investment strategies.