" I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." - Satoshi Nakamoto

To recap, last week we touched upon:

1. Transfer of Value
2. The concept of trust on transfer of value - an authority or intermediary will verify we are actually who we say we are and do we have the funds we say we have?
3. The version of truth maintained by intermediaries / central authorities
4. Double spending
5. Meaning of peer-to-peer
6. Failure of earlier attempts to create digital currencies and reasons for the same most notably centralization and double spending

Now, let us answer the question that was asked from week 1 - What is a blockchain?

To put it very simply - We can define blockchain as

a SYSTEM that allows a NETWORK of connected computers to maintain a SINGLE, UPDATED and SECURED ledger

(We will expand to a more technical definition later!)

So, the key terms of the above definition are

1. A System

2. A network of connected computers

3. A single, updated and secured ledger

What is a ledger? For those who are not in accounting, a ledger is a principal book that records all the accounts of your business like expenses incurred, income earned, assets owned, liabilities owed etc. For more details on concept of ledgers, please refer here

The below shows a simple transaction where a sender sends $50 to a beneficiary and how it impacts the ledger of each bank

Now, how can a group of interconnected computers maintain the same ledgers, update it at the same time and then keep it secure?

Let us start with certain key parameters (as starters!!) that we need to touch upon when trying to understand how blockchain works. They are:

• Decentralized network

• Database administration & control

• Mode of Communication between parties

• Immutability of transactions

• What generates trust in a system

• Privacy, anonymity / pseudonymity

To visualize an analogy, let us make a simple comparison of an IT system in a bank with blockchain for the above key parameters

Let us dive into blockchain by expanding on each of the above points & delving into other aspects as we move foward