Simply Put: Understanding Blockchain via Norway and Narnia

Blockchain is a decentralized database technology that tries to approach very important questions in a different way to traditional (centralized) databases. Ultimately, these questions boil down to:

• What is the truth?
• Who gets the last word on what the truth is?

In information management circles, we’ve tried to find a way to the ‘single source of truth’ for decades. Information sprawls. Being able to have a definitive answer on any one matter – whether that’s the last version of a memo or the real-time stock in a retail store – is incredibly valuable.

After all, if you’ve worked in an office for any length of time, you’ve probably renamed a file to something like ‘version 2.5 final final THIS ONE’ – and inevitably, it’s not ‘final’. This analogy doesn’t quite work because blockchain isn’t a file storage technology, but we’ll come back to that later.

Blockchain’s answer to defining truth is democratic. As its name suggests, information is stored in blocks, and these blocks are linked together in a chain. The order of this chain is documented, so once a change is made, it becomes an indelible part of ‘history.’ This establishes ‘truth’ by tying historical facts (or transactions) together so that one is linked to the next – and altering one event means altering the entire chain of events, rather like needing to rewrite an entire history book from the change of one small detail.

Let’s look at an example in practice.

When a change occurs in a blockchain network (like buying a cup of coffee with cryptocurrency) the information is sent to the network and preliminary checks are done – for example, checking that you have enough money to buy the coffee.

If there are any blockchain experts reading this, let’s assume it was a very expensive and significant coffee, because smaller transactions are often handled slightly differently in blockchain, in what we call Layer 2 Networks. We’ll come back to these later in the series.

Once the transaction has been verified, it’s then packaged up with other transactions to form a block and linked to the previous block in turn.

Next, the network has to make sure that the block is valid. This is done through a process called consensus, or validation, and is handled slightly differently depending on the network. Bitcoin uses a system called ‘Proof of Work,’ where different users work to verify complex equations that prove that the block’s contents haven’t been altered and that it does really link to the previous block. If anything has changed in the block since it was submitted, the equation doesn’t work and the block is rejected.

This is a computationally intensive process and requires a lot of electricity, particularly at scale. At one point, Bitcoin used as much electricity as all of Norway, so there are many other alternatives. For example, Solana uses ‘Proof of Stake,’ where the parties involved in verifying the block put forward assets (in this case, actual cryptocurrency). Then, the lead validator builds the block and adds a digital signature to it so as to say that they checked it, and that they have a real stake in the matter (i.e. money). This data is then re-checked by other validators, who vote on the validity. If there are enough ‘yes’ votes, then the block is agreed upon.

Of course, this does rely on trust, but there are usually big penalties for validators who ‘cheat.’ For example, they can have their stake removed, and/or they can be restricted from contributing to validation in future.

Solana also uses a system called ‘Proof of History’ to help it process a large number of transactions, which is a bit different to other systems.

But once approved, the block is then officially part of the chain, and the transaction can be completed – and you can get your Americano.

To define blockchain in another way: it creates a system of establishing trust and control without one single authority. Trust is distributed between all the different parties involved in the network. In fact, almost anyone can become a blockchain validator, although each network has its own requirements to do so.

As we’ve seen, blockchain is much bigger than just Bitcoin; the distributed database structure can be applied to all kinds of settings. We’ve seen organizations using blockchain to verify where tuna fish were caught, to ensure that they were ethically fished, and that the handling of said tuna could be traced from supermarket to distributor, and back to the person who caught them in the ocean.

Another major application for blockchain is in identity verification. Blockchain systems can help to check the validity of something without violating its privacy.

For example, imagine that you’ve discovered the famous Narnia wardrobe. You’ve decided to try to prevent people from sneaking in and causing chaos, so you’ve created a password-protected way to get in. You’re trying to qualify for state support to redevelop your house into a tourist attraction, so you need to prove that the wardrobe is the real deal. On the other hand, you don’t want to just give out the password because you’ll have government officials popping in and out all the time, conjuring infinite amounts of Turkish Delight and smuggling talking badgers out under their coats.

Blockchain’s answer to this is simple: you pop inside and take a selfie with Aslan and Mr. Tumnus, showing conclusively that you have access. This is how Self-sovereign identity works, which requires blockchain to link the wardrobe with the selfie. The two need to be linked – after all, you could have just popped into your friend’s magical wardrobe and taken a photo of some other lion and faun!

Many age-verification systems work in similar ways. For example, in many countries it’s illegal to give credit to someone under 18, so having a credit card is proof that you’re older than this, without having to show your passport or driving license. And in this case, it’s vital to show that the credit card is linked to the person using it, or the system doesn’t work.

Finally, it’s worth knowing that there are a number of different ecosystems within blockchain. Although they’re not strictly specialized, we can generalize that Bitcoin is focused on currency, Solana tends to being more of a platform for decentralized apps, and Ethereum is known for facilitating transactions quickly and making use of smart contracts – an ecosystem similar to Avalanche, but Avalanche has a modular approach focused on speed.

This picture is further muddied by the fact that there are public and private blockchains, which are also subdivided, but which essentially dictate who can see the blockchain and who has permission to be on it.

In our next blog post, we’ll go into a bit more detail about the blockchain world, focusing on the truths that IT leaders need to know. In the meantime, if you want a clearer, more practical view of how blockchain fits into real-world infrastructure, you can explore our resources and customer success stories on our website.