A blockchain is simply a list of information which is maintained and updated by all people who like to participate in the process. New information is written to the list after a certain amount of time in a so-called block and the process of creating a new block is called mining. The full list is a chain of all those blocks of information, a blockchain.

A simple Example:

Let’s imagine some people play a game like monopoly where you need to buy streets and build hotels on them. For that you use the in-game currency a certain amount of which you can collect each round. Normally there would be one player to take care of distributing and handling this currency like a bank, but we imagine now that the players want to use a blockchain to control the flow of currency. This means everybody keeps track of all the transactions in their own list. After each round all of them would come together to compare their lists and conclude on a common version which will then be continued by everybody (just in case someone made some mistakes in their list). Also, every player would receive a certain amount of the in-game currency each round. That way they would not need to use the paper bills from the game anymore because everything would be written in this new accounting system and would be transparent to anyone. The players have created a blockchain to keep track of their currency.

Real blockchains like Bitcoin or Ethereum are updated and maintained by computer programs which make sure that nobody inputs false information. Every player or participant gets a public address (something like a bank account number) and the owner of the address has a secret password a so called “private key” with which they can prove that they are the owner of the address when they want to make transactions. It should be noted here that the private key must never be shared with anyone! NEVER! Anyone who knows your private key can transfer all your funds. Private keys are cryptic long chains of random letters and numbers. To recover this private key a seed phrase can be used which consists of 12 or more random words. The seed phrase can be mathematically transformed into the private key and thus also needs to be kept secret!

The currency which is transferred on a Blockchain is often referred to as a coin. In our example we would now have created a “monopoly-coin” (no relation to any real coins registered under this name is intended here!). The process of mining (creating new blocs) takes a lot of computing power due to a system called proof of work, but we do not want to go too deep into detail on this topic. The people or organizations who mine the blocks are called miners and they will request a fee from the people who want to make transactions. These fees are paid with coins. There is a lot of information to be found on the internet for those who are interested to go down that rabbit whole.

In summary, blockchains are long lists of transactions and show us exactly which address holds what amount of the respective coin.