How do crypto currencies work and what is a blockchain?
How do crypto currencies work and what is a blockchain?
I have done some reading and think I have a basic understanding. But if I had to explain it to someone else, I would probably fail, which means I don't understand it well. Please ELI5 this for dummy me.
Imagine you are a owner of a lemonade stand. You need to keep track of how much money you make every day, so you start writing the days transactions on a Post-it note. Problem is, somebody could easily forge a note and add it to your pile without you noticing. So you start writing the sum of all the previous notes on the top of each new note in your pile. Now, anybody who wanted to forge a note would also have to forge all the other notes after it. This is a very simple blockchain. Each note (representing a block) contains a simplified version of the note preceding it. Because it would take an excessive amount of effort to forge a blockchain, it can act as a ledger of transactions without a third-party to guarantee it. This is why blockchains can be decentralized—theoretically, no central entity is required to ensure all the other parties are being honest with each other.
It's really just a public ledger. Users have addresses and the blockchain keeps track of transactions between addresses. "Token" is just a word to help you visualize what's happening: the ledger says that you now have X+1 and the other guy has Y-1.