What is Blockchain?

Find out exactly what blockchain means and why it is such a powerful technology.

Blockchain, distributed ledger, decentralized, consensus. So many words and concepts explained in everyday English.

Imagine a new kind of database. One that is held on many thousands of computers across the Internet, and which is designed to be regularly and simultaneously updated. This is a Blockchain: a shared database distributed across many computers which continually reconcile with each other to ensure that amendments to the database are correctly authorized and approved.

A database of this sort is stored in many places, making it safe from physical destruction. Because it is distributed across multiple computers, which must agree that amendments are correct, it is harder for the data held within it to be hacked or corrupted.

A Blockchain network exists in a state of continuous governance by consensus. Consensus means the network periodically audits itself to ensure that the majority of the participants agrees that all amendments to the data within the network since the last check are correct and valid. The network rejects all invalid amendments. To force an invalid amendment to be accepted by the network a hacker would have to simultaneously take over 50%+ of the network points (nodes). The more of these there are, the harder and more expensive this is to do. System users interact with each other on a peer to peer basis, eliminating middlemen and rent-seekers potentially freeing up millions of dollars for other, more productive, economic purposes. Who needs a bank when you can transact peer to peer over a blockchain network and exchange funds directly with your counterpart, secure in the knowledge that the public ledger tells you that they have funds available and have agreed to pass them to you?

By design a Blockchain Network is a decentralized technology. This means that there is no single point where a decision is made, each node makes its own decision as to its own behaviour and the resulting behaviour of the system is the majority response.

In a future article we will cover more about why Blockchain is a foundational technology having the capability to be as disruptive as the Internet.

Why is decentralization useful?

  • Collusion resistant - It is harder for participants to collude with each other at the expense of other participants
  • Less likely to fail accidentally
  • More expensive to attack, destroy or manipulate because they lack single points of failure which can be attacked at lower cost than the overall system

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Don & Alex Tapscott, authors Blockchain Revolution (2016)

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