If you’re like me a few years ago, you’ve probably heard the terms “blockchain” and “cryptocurrency” thrown around a lot recently. But if someone asked you to explain what a blockchain actually is and the different types, you’d probably stare back blankly like I used to. No judgment at all! Blockchain technology is complicated stuff that even adults struggle to understand.

When I first heard about Bitcoin back in high school, I just thought it was an alternative online money used to buy questionable things off the internet (sorry mom!). But it turns out there’s much more to blockchains than facilitating secret internet trades. They have the potential to transform all sorts of industries.

In this post, my goal is to explain the basics of blockchains, the different types, and what they can be used for in simple words that even a middle-schooler could understand. Because while the inner workings are super complex, the fundamental ideas really aren’t!

Blockchain Bubble Tea

Here’s a metaphor to help understand what a blockchain actually is.

Imagine a bunch of people sitting in a room sipping boba milk tea and chatting about their day. These people don’t really know or trust each other since they just met.

As people finish up their tasty drinks, they write down the details of their boba orders on pieces of paper – things like the tea flavor, sugar level, and toppings. When done, everyone passes their piece of boba paper to the person sitting on their right, who reviews it and adds their name underneath to show they approve. Once reviewed and signed off by the person to the right, the paper gets passed further down the chain for more reviews and signatures before ending up back with the original boba orderer.

This room full of strangers writing down, approving, and passing around boba orders represents a blockchain network. The individuals are network participants, the boba orders are transactions, writing the orders down creates blocks, and passing to the right for reviews and signatures verifies the transactions and adds them to the chain of blocks.

The key is that instead of relying on some central Boba Store employee to manage all orders, everything is independently verified by this “decentralized” network of boba drinkers. No one person controls the process. Plus, all signers are anonymous strangers, just like in real blockchain networks. This makes cheating or lying practically impossible since faking an order would require forging an entire chain of signatures.

Pretty cool innovation just to manage hypothetical boba orders right? Now imagine applying the same paper-passing verification concept to things like money, contracts, assets, credentials, etc that people might want to cheat or tamper with if controlled by a single authority. Suddenly you see why blockchains inspire so much hype despite sounding mundane on the surface!

Not All Blockchains are Created Equal…

While the decentralized verification process described above captures the essence of blockchains, not all blockchain networks operate the same way. Depending on who is allowed to participate to verify transactions and view the data, blockchains generally fall into three categories – public blockchains, private blockchains, and consortium blockchains.

Public Blockchains

Just like anyone and everyone was allowed into the metaphorical boba room, public blockchains are open networks that let any interested and willing participant join. The most famous example is of course Bitcoin and similar cryptocurrency projects.

With a public cryptocurrency blockchain, transactions are verified through a decentralized process called “mining.” In this case, specialist network participants called miners compete to solve complex math puzzles. Whichever miner solves the puzzle first adds a new block of transactions to the chain and is rewarded coins as an incentive. Without getting into the weeds of mining, the key idea is that public blockchains rely on this large decentralized network of miners to stay secure.

Beyond cryptocurrencies, other applications leveraging public blockchains include platforms for creating non-fungible tokens, storing medical records, tracing supply chains, decentralized cloud storage, and even powering the metaverse.

Private Blockchains

On the other end of the spectrum, private blockchains limit permissions to just select users, similar to an exclusive club. Participants usually have to be approved by whoever sets up and manages the network, like a traditional company or government agency. Instead of open mining, transaction verification is handled by these pre-approved authorities.

For example, an airline company could run their own private blockchain ledger internally between airline offices to keep shared records updated in real-time. Since participation requires permission, the data can be kept hidden from public view.

Other popular private blockchain use cases include securely storing sensitive customer information, recording financial transactions at banks, and managing healthcare data at hospitals. Although transaction verification is more centralized compared to public networks, private chains offer more privacy and regulatory control.

Consortium Blockchains

As kind of a hybrid between public permissions and private restrictions, consortium blockchains fall somewhere in the middle. They function through a group or “consortium” of organizations sharing governance over the network rather than a single private entity or totally open to the public. Certain industries where competitors still need to collaborate like trade finance and supply chain tracking are early pioneers.

Let’s walk through an example consortium network between port shipping authorities, import/export companies, and customs bureaus. While port and customs authorities might restrict outside access similar to a private chain, explicitly whitelisted import/export companies within the industry can be allowed to join the network for tracking global shipments in real-time. Transactions would be verified between this consortium rather than relying on a single private entity or decentralized public mining.

Well there you have it amigo! The three flavors of blockchains and a sampling of their many potential applications. Of course we barely scratched the tip of the iceberg in terms of the technical magic powering real-world networks which are much more complex. But like I said earlier, the fundamental concepts behind blockchains aren’t so cryptic! Now that you understand the basic idea and types, the intricate details around cryptography, hashing, nodes, consensus protocols, and all that jazz might be slightly less confusing looking forward.

Let me know in the comments if you have any other blockchain or cryptocurrency topics you’d like me to cover in plain English! And make sure to hit that subscribe button to get future beginner-friendly crypto explainers delivered directly to your inbox 📬