2. Decentralized

Decentralized or distributed has become the magic word for everything online lately. It means that data is not stored on one central computer or server, but copies are kept on several different devices. All copies are connected. Every time something new has been added, all copies are automatically updated.

Don’t get confused though! The term is also used to describe the anatomy of most cryptocurrencies: there is no central bank that mints or gives out coins. In our explanation, we’re focussing on the copies of the data being all over the place.

3. Non-modifiable

Once the data is submitted to the blockchain, there is no way of changing it. Since the information is stored in so many places, it is impossible to manipulate the numbers. You would have to hack your way into an enormous amount of servers at the same time.

There are some theoretical possibilities to attack the blockchain, but they’re really hard and we don’t need to understand them quite yet.

4. Block + chain = blockchain

The data stored on the blockchain is not one huge blob of numbers and code. Transactions or other info are packed into blocks. Some blockchains have perfectly equal blocks (Bitcoin), others have variable sizes (Monero).

Once a block is filled up with information, miners (that’s their usual name) will wrap it up and link it to the last block. This is how the blockchain is created. Everyone with a copy of the blockchain will now have to update and add the new block.

5. Transparent

The blockchain cannot be modified, but everyone can have a look at the existing data. Using a tracker/explorer (a website or interface that helps you navigate and gives you some search options), you can find a specific transaction or other input.

You can also just browse the blocks, watch new blocks being added or simply trust us on this one and read on.

When you’ve understood the basic idea behind the blockchain, there are loads of varieties to be discovered. Most new coins with their own blockchains try to solve a certain problem, e.g. scalability or privacy. Nano gives each user their own private little blockchain > zero transaction time. Monero trades transparency against absolute anonymity. EOS and NEO choose security over decentralization.

Cool, right?

The next thing we want to understand is cryptographic hashing. Once again a term that sounds like you need a Master’s Degree in Data Engineering, but for our purposes, a basic understanding will do just fine.

Hashing

Cryptographic hashing is a technique used to compress data. As with the blockchain, we will only get into the technical side as far as we have to. Think of it as a mathematical blackbox: you put numbers or text in, magic happens, and it spits out a string of numbers and letters. There are many different methods to generate hashes — Bitcoin uses SHA-256, so that’s the function we will take as an example.

Four important aspects are:

The output always got the same size

A hash is generated by squishing input through a function that renders a hash. If we put “Hello” through the function, it spits out this (hexadecimal) hash with 64 digits:

185f8db32271fe25f561a6fc938b2e264306ec304eda518007d1764826381969

Contained are the numbers 0–9 and the letters A-F, also known as alphanumeric.

”Hi there aspiring miners!”

bf47ae1ca2680c1dfb81dc6dfb02b26285e13bf880a15ccfb76d2cd2c0126c29

“Notice anything peculiar about the hashes?”

20f876c131cc3d4562e400e62035337204b62a2268f7d1a156254b0419714b32

“We could copy Tolstoy’s entire War and Peace novel and we’d still end up with only 16 digits!”

a54b45d8df2a17b6b7808f86b7d69898dc690488e367ce2b24fc5a60dc017ff2

The size of the input is not important for the output. Using the SHA-256 function, the hash result is always the same length. The alphanumeric display with 64 numbers and letters is the easiest display for human beings. Robots prefer a binary display: 256 zeroes and ones. We’re sticking with humans though.

Try SHA-256 and other hash functions for yourself on https://hashgenerator.de/