Blockchain Basics
A blockchain is a shared digital record system. Instead of one organisation keeping the only copy of a record, many computers can keep and verify synchronized copies according to agreed rules.
1. What problem does a blockchain solve?
Traditional databases usually have an administrator: a bank, company, government department or platform. That model is often efficient. A blockchain is useful when multiple participants need a shared record but do not want one participant to have complete control over changing that record.
2. Blocks, transactions and the chain
A transaction is a proposed change to the ledger. Valid transactions are grouped into blocks. Each block contains information that links it to earlier blocks. This linking makes past records difficult to alter unnoticed because changing one record can break the consistency of later records.
3. What is consensus?
Consensus is the method a network uses to agree on which transactions are valid and what the current ledger state is. Different blockchains use different mechanisms. There is no single consensus method used by every blockchain.
4. Public and private blockchains
Designed so a broad public can usually inspect the ledger and participate according to network rules.
Participation is controlled by an organisation or consortium, often for enterprise use.
5. What blockchain does not guarantee
Blockchain records can make tampering harder, but they do not automatically guarantee that information entered was truthful, that a project is legitimate, or that an asset will increase in value. Technology does not remove the need for verification, governance and law.
Key terms
A record of transactions or state changes.
A computer participating in a network.
A group of validated records or transactions.
The process used to agree on valid network state.
Knowledge Check
1. Does every blockchain have one central administrator?
Answer: No. Many blockchains distribute validation across multiple participants, though some systems are permissioned and more centrally governed.
2. Is cryptocurrency the same thing as blockchain?
Answer: No. Cryptocurrency is one possible application of blockchain technology.
3. If data is recorded on a blockchain, must it be true?
Answer: No. A blockchain can preserve records, but false or misleading information can still be entered if the system does not prevent it.