Blockchain is the new buzzword. If you’ve heard anything about it, it probably wasn’t a good idea.
The term “blockchain” first appeared in cryptography texts in the early 1990s, when cryptographers realized that blockchain was a clever way to make sure that no one could cheat on a shared secret by copying it and then claiming to have verified it again.
It’s not easy to understand what blockchain is, or how it works. It’s also not obvious that blockchain has anything to do with software. But in the last few years, the term has started turning up in pieces of software called “smart contracts”. These are self-executing programs that can be used to build things like online currency exchanges or new kinds of internet-scale financial system.
The way these systems work is simple: Every time someone transfers money from one account to another, they must use a piece of software called a “smart contract” to prove that they haven’t cheated by copying the contract and then sending themselves a copy.
Blockchain is a bit like a database, but it is more like a social network. It has its own currency, called bitcoin. Bitcoin is the most famous cryptocurrency in the world, but there are many others. The basic idea of cryptocurrencies is that you can use them to send money anywhere in the world without needing to trust any banks or governments.
Bitcoin and other cryptocurrencies have been around for several years now, but they’re only just starting to get used for real transactions. That’s partly because cryptocurrencies are still relatively new, and partly because companies and individuals haven’t quite figured out how to use them yet. That doesn’t mean they’re useless—they certainly have some advantages over conventional currencies.
One advantage is that blockchains are fast. They take only a few seconds to register each transaction, compared with many hours with conventional banking systems. That’s important if you want to make and receive small payments quickly: you might not want to wait for large banks to approve and process your payments before receiving your money or paying you back.
A blockchain is a distributed ledger. It’s like a database, but it can only be updated when the majority of the people agree that it has changed.
It’s important to understand that a blockchain is not the same thing as a distributed ledger. A distributed ledger is just a way of keeping track of many databases. But you can have a blockchain without having any databases at all.
A blockchain is basically just a list of records that nobody can change except by unanimous agreement on the list. Only then will everyone agree that the record has indeed changed. This means you can create a blockchain without involving any computers. You could keep your records in your head, or on paper, or in files on your computer, or on anything you like: in fact, if you were living in an imaginary society with no computers, it would probably be easier to manage your life that way: you could then trust that an agreement had been reached and there was no one around to say “No, really.”
Suppose you want to set up a system for recording which bedtimes children have been keeping recently and what they’ve been doing during those bedtimes. That’s not difficult; there are plenty of ways to keep records without involving computers. You could keep them in your head or write
Blockchain is an idea that has been around for a while. The concept is to create a kind of network that doesn’t need central control. All the participants in the network are equal partners. They can both read and write to each other’s records, and when they agree on something, it is final: no one can challenge it.
Blockchain is sometimes described as a “distributed database,” but that’s not quite right. A distributed database lets you add data to it without taking it off the main server. It gives you redundancy, so if you lose the main server or update the main server, your data doesn’t disappear. Blockchain is more like a distributed system of checks and balances.
Just as with voting systems, once you start using blockchain you find there are two reasons why we need checks and balances: fraud prevention, and failure detection and recovery.
The blockchain is a new kind of electronic ledger. It’s a way of keeping track of information about who owns what.
The blockchain starts with an idea in the 1970s: what if we had a way to keep track of information without anyone needing to keep track of the information?
The technology was developed, but it was not widely used for several decades. In the 1990s and 2000s, people started to use it again because it solved problems that no other system could solve. These included keeping data secure, facilitating transactions, and enabling trust between strangers.
There are many different kinds of blockchains (more on that below). But they all have something in common. They are decentralized by design; that is, their architecture means they cannot be controlled by any single entity or group of entities. This implies that they have no single point of failure, which is one reason why they are so secure.
Blockchain is a way of making a big transaction as safe and cheap as possible. It’s like the Internet, but safer and cheaper.
Blockchain is just one of many ways to keep track of things. Bitcoin, the most famous and best-known blockchain product, works by taking a record of all transactions in a giant database (a ledger), then linking them with cryptographic proof-of-work that no one can forge without solving extremely hard math problems. The Bitcoin protocol is designed so that anyone can download the application programming interface (API) that lets you easily create your own private blockchains.
Blockchain is a technology that enables the creation of an unprecedented level of trust. The information being stored in all these computers is encrypted, and because it is encrypted, no one can read it without the right password.
The information is stored in a form called a “block,” which is just a linked series of bits. This makes it hard to copy, but not impossible. The chain that holds the block together is called a “chain.”
It’s important to realize that blockchain doesn’t rely on trust between computers; instead, it relies on trust within computers. Each computer stores its own copy, and when you make your transaction, you ask each computer to verify the block it holds, and then add its copy to yours. So everyone in the system can check everyone else’s: there are no trusted middlemen for the system to cheat through.