Why So Many Blockchains?

The simplest and clearest way to describe a blockchain is as follows: a blockchain is a file that records every transaction ever made with a cryptocurrency.

However, this definition is incomplete. It leaves out essential operating principles that define what makes a blockchain unique. These principles include:

• Information is recorded in blocks.
• The file is distributed, meaning it’s stored on multiple computers simultaneously and kept in sync across them.
• Data entries adhere strictly to consensus principles set for the cryptocurrency.

Once these principles are introduced, the concept of blockchain becomes a bit more complex. So, let’s start by remembering the basics (a blockchain is a file that holds records of all transactions) and, building on this, delve into the details. In fact, understanding it isn’t as difficult as it may seem.

The Purpose of Blockchain

Imagine creating a form of digital currency (for a game, a company’s internal transactions, or even a country’s currency). We’d want to know precisely:

• Who transferred money to whom, when, and how much.
• How much money everyone currently holds.

To achieve this, we start recording all money transfers in a book (ledger). Since the currency is digital, the ledger will also be digital — a database, essentially, which we call a blockchain. We establish a rule: a transaction is considered valid only when it’s recorded in this database.

Under this rule, every time Alice sends money to Bob, she must record this in our book. If the entry isn’t there, the transfer isn’t considered complete. Anyone who opens the book will see that the money still belongs to Alice.

In this way, a blockchain becomes the single authoritative source of information on every transaction involving the money we created. Thus, it also accurately reflects who owns what amount at any given moment.

How Blockchain Works

This approach to recording transactions has several vulnerabilities:

1. If anyone may add a transaction to the ledger, Carol, who might want to harm Alice, can write in the ledger: “Alice transferred all her money to Bob.”
2. Alice can secretly remove the page with the record of her transfer to Bob, and on a new page, write that she transferred the money to Dan instead.
3. If the ledger is destroyed, verifying everyone’s balance would be impossible.

Blockchain solves these problems by adhering to the following principles:

1. Only someone who can prove they have access to funds can enter a transfer in the ledger. In an encrypted database, access is controlled through a key. Only the key holder can add a transaction from that address to the ledger. This prevents Carol from transferring Alice’s funds.
2. Each “page” (block) begins with the hash of the previous “page” (block). A hash is a unique cryptographic fingerprint of the data. Even a minor change, or the deletion of a block, disrupts the chain’s integrity, making it clear where tampering has occurred. This prevents Alice from erasing or altering an entry unnoticed.
3. Anyone can save the blockchain on their computer and sync it with other devices, adding new blocks (pages with transaction records) as they appear in the network. Even if some copies are destroyed, others will remain intact. This decentralized nature makes blockchain nearly indestructible.

A blockchain records data not as individual entries but as whole blocks, akin to regularly inserting filled pages into a book. Hence the name: “blockchain.”

Transaction senders place their records on “pages” awaiting insertion into the book. When a block is added to the blockchain, its validator (or miner) verifies that each transaction adheres to the cryptocurrency’s rules. For instance, it checks that each sender signed their transaction with the correct key for the originating address. Only rule-abiding transactions make it into the block and are recorded on the blockchain.

Can One Blockchain Suffice?

Though a blockchain “book” can theoretically have endless pages, each page’s space is limited...

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