I spend a lot of time explaining blockchain to people and I get some interesting questions about it. Someone recently asked me how I would explain blockchain to my grandmother. I came up with a good answer you might find helpful explaining blockchain technology to some people.
A blockchain is a distributed ledger that runs on computers. Before computers, there was another kind of distributed ledger commonly used by banks. It is called a passbook savings account.
If you open a passbook savings account (they are still around, but not so common), you get a book with pages that look like the one below:
The bank keeps an identical book on file. When you go into the bank to make a deposit or withdrawal, you hand the teller your passbook. The teller gets the bank’s copy of the book out of their file cabinet.
The teller puts both books into a sort of double typewriter, where everything that the teller types gets written into both books at the same time. If your account earned some interest since the last time your passbook was updated, then the teller enters that in both books. The teller then enters your deposit or withdrawal in both books. The teller then puts the bank’s copy of the book back in the file cabinet and hands your book back to you. The books are still identical, with the same new transaction in both.
Passbooks are a type of distributed ledger that requires no computer. There are two copies of the ledger.
Blockchain technology is a type of distributed ledger that runs on computers. There are always more than two copies of a blockchain. The copies contain identical information.
There are always more than two copies of a blockchain. The copies contain identical information
Before accepting a deposit, the teller counts the cash or inspects the check that you are depositing to verify if the transaction is correct. Blockchain technology also verifies transactions before accepting them. Each copy of the blockchain uses the computer it runs on to verify a transaction, then the copies of the blockchain check with each other to make sure they agree that the transaction is correct.
Before entering a transaction into a passbook, the teller looks to make sure that the two books are the same. Before a blockchain technology records a new transaction, the computers make sure that all the copies of the blockchain have the same information.
That, with some simplification, is what a blockchain is.
