So far we have covered:
- Transactions are bundled into blocks
- Blocks are signed by the validators
- There’s a limited block size and block time (rate at which blocks can be created).
The next thing to understand is that blocks are also chained.
In particular, every block points to a single block before it, and a single block after it. This is obviously necessary when you think of it because if the blocks weren’t chained, then you wouldn’t know which order the transactions occurred in. For example, if one block contains a transaction from A → B, and another contains a transaction from B → C, you don’t know whether a particular transaction was valid unless you knew the order in which they happened.
In that sense, a “chain” of blocks represents everything you need to figure out everyone’s balance. That’s why you’ll often hear people referring to the bitcoin blockchain — they’re just talking about all the transactions that have happened thus far.
Every blockchain starts with a genesis block, which is the first block ever created. In the case of bitcoin, Satoshi created this block, and the only transaction in it was the reward he got for creating the block (the small validator reward we talked about in the example earlier). After this block, the only person with a balance in the ledger was Satoshi. Other blocks followed, with rewards being captured by other people and containing transactions from Satoshi to others, and through this mechanism the ledger grew to contain many more balances than just that of Satoshi.
Note: If you’d like to get a deeper understanding of how the blockchain works, check out The Ultimate Guide to the Blockchain.