Blockchain Explained in Plain English (No Tech Degree Required)

Strip away the complex jargon and understand the tech behind every cryptocurrency using one simple mental model.

If you want to understand how cryptocurrencies work, you need the right mental model of blockchain. Whether it is Bitcoin, Ethereum, or any of the thousands of other digital coins, every single cryptocurrency uses a version of this exact same system. Forget the complex coding jargon for a minute and picture something much simpler.

The Giant Yellow Notebook

Imagine a giant yellow notebook that the whole world shares. No single boss owns it, and anyone can look at the pages. This notebook is used to write down deals, like who gave digital money to whom. Once a deal is written in pen, it can never be erased or changed.

Pages and Wax Seals

Every new page in the notebook has two parts. The top of the page has a time stamp, a page number, and a special wax seal that links it to the page right before it. The rest of the page is just a long list of deals.

The wax seal is made using a clever math trick. If someone tries to sneak in and change a single letter on an old page, the wax seal shatters. Everyone looking at their notebooks will immediately see the broken seal and throw that fake page away.

The Volunteer Helpers

You might wonder who writes the pages. There are volunteer helpers all over the world competing to add the next page. To win the right to glue the new page into the book, they have to solve a guessing game.

The game automatically adjusts itself to be harder or easier depending on how many helpers are playing. It makes sure a new page is added exactly every ten minutes. If the helpers quit because the work is too hard, the game gets easier so new helpers will join in.

Writing Deals Without Passwords

When you want to send money to a friend, you do not use a password. Instead, you have a public mailbox number and a secret physical key. You write the deal on a slip of paper and stamp it with your secret key.

You hand this slip to the helpers. They look at your stamp to prove you really own the money. Since you never show them the actual secret key, no one can steal it. The notebook never saves any passwords anywhere.

The Golden Limit Rule

This specific yellow notebook has a strict rule built into it. The helpers are rewarded with brand new digital coins for their hard work. But the rules say only 21 million of these coins can ever be created.

Every four years, the reward gets cut in half. Around the year 2140, the very last coin will be given out. After that, the notebook will keep adding new pages forever, but the helpers will only get paid from small tip fees attached to each deal.

Copies Kept Safe Everywhere

This giant yellow notebook is not locked in a bank vault or a single computer. Instead, thousands of people keep exact, updated copies of the entire book in their own homes.

If half of these people disappear tomorrow, the notebook is still completely safe. The remaining people will just keep sharing their copies with anyone new who wants to join. The history is only lost if every single copy on Earth is destroyed at the exact same time.

Fake Names and Future Robots

When you write in the notebook, you do not use your real name. You just use your mailbox number as a fake name. But if you ever link that mailbox number to your real bank account, clever investigators can trace your steps by reading the public pages.

People also worry about super smart, futuristic computers breaking the wax seals. But builders are already testing new, super-strong seals that even the smartest future robots cannot break. Some newer notebooks are already using these upgraded seals today to stay safe.