Imagine you are in school.
You promise your friend, Jake, that you’ll give him your pizza for breakfast if he gives you his momos at lunch.
Jake writes down “IOU (I Owe You) my lunch momos” in your notebook.
Later, you find out that Jake made the same promise to Rita and wrote the same IOU in her notebook too. When you tell the teacher that the momos belong to you, Jake denies writing the IOU.
To prevent this problem in the future, the teacher says she’ll keep a notebook with all the IOUs so there’s only one place with all the exchanges. But, this doesn’t work out because Jake sneaks into the notebook while the teacher is sleeping and changes all the IOUs so they owe him everything.
To solve this, you and your classmates decide to make an electronic IOU notebook app for everyone. Every time an IOU is added, it goes to everyone’s phones at the same time. This means that no one can change the IOU because everyone’s phone knows the truth and has the same list of all the IOUs. The app checks the IOU to make sure it’s good and when enough apps agree, the IOU exchange is stored as a “block” in everyone’s digital notebook.
This keeps track of who owns what at all times. So, even if something is traded many times, like a double cheese sandwich, you can always trace it back to where it originally came from. They can check the chain of blocks to make sure. To encourage participation, the class agrees that each time 50 IOU blocks are verified, everyone who helped gets a coke.
In real life, Blockchain works in a similar way but instead of apps on phones, the “IOU ledgers” are stored on computers all over the world. This allows for trusted exchanges without having to use an unreliable IOU bank and reduces the chance of being tricked. The unique way the blocks are verified and recorded keeps the system honest. Blockchains keep all the information linked together all the time so it can be accessed when needed.
In the future, Blockchain can be used for more than just money and IOUs.
It can be used to store important information like medical records, track rare things like a special painting or a diamond, and track shipments of products like your favourite PS5 console.
Hope you are now able to understand, what’s a blockchain 🙂