No single entity is responsible for maintaining it. Instead, computers called nodes in a peer-to-peer (P2P) network each store a copy of the ledger. Specialized nodes then verify transactions through a decentralized consensus mechanism to reach an agreement on the state of the network.

Transactions are stored in permanent, time-stamped units called blocks. Each block is connected (chained) to the previous block using a cryptographic hash created by the previous block’s data. This cryptographic linking prevents data from being altered in one block without also changing each subsequent block, maintaining data integrity.

Any attempt to alter or delete transactions in a block will break the cryptographic chain and immediately alert all nodes in the network.

Originally developed for digital currency, blockchain is now used across various industries. Applications range from smart contracts, which are computer programs running on the blockchain, to records management in healthcare and identity and access management (IAM). Decentralized finance (DeFi), gaming, and metaverse projects also use blockchain to ensure equitable access and ownership of digital assets.

The theory of Blockchain has been around for quite some time. David Lee Chaum is credited for proposing the idea in 1982.

Although he presented the theory in his doctoral dissertation Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups, it wouldn’t be until 2008 that Blockchain technology was introduced to the world along with the digital currency Bitcoin.

Several other projects followed Bitcoin’s launch in 2009 in the early days of blockchain, including Litecoin and Peercoin, launched in 2011 and 2012, respectively. The latter introduced a new consensus mechanism called proof of stake (PoS).

Today, Ethereum, the second largest blockchain project by market capitalization, uses PoS to validate transactions using cryptocurrency as collateral to help ensure proper behavior by validator nodes.

Blockchains ‘listen’ for broadcasts of new transactions from crypto wallet addresses. Nodes within the network then group these transactions into blocks and verify the transactions to prevent double-spending or duplicate transactions.

Various blockchains each use their own protocol to determine which transactions are valid and how the network reaches an agreement (consensus) on the state of the network, including the order of transactions and wallet balances.

As each block of transactions is assembled and added to the chain, each block also includes a link to the previous block, forming a chain. If any of the data in a previous block is changed, this link also changes the hash value of the subsequent blocks, creating a fork in the chain. Other nodes in the network reject the changed block and its subsequent blocks as invalid, negating any financial gain in changing a previously mined block. This aspect of consensus makes blockchains immutable, meaning the data held in confirmed blocks can’t be changed without great expense.

Blockchain networks use one of two primary consensus mechanisms: proof of work (PoW) and Proof of Stake (PoS). The latter of these has become more popular for newer blockchains because it uses much less energy. For example, in 2022, Ethereum switched from PoW to PoS, reducing the carbon footprint for the chain by an estimated 99.992%.

Annual Energy Consumption in TWh/yr [Image]

Computers on a Blockchain P2P network sync periodically to ensure that all copies of the shared database contain the exact same information, but it is the linkage between blocks that keeps blockchain ledgers secure.

Blockchains differ in how they operate, but most share these core elements:

While we often associate blockchains with cryptocurrency, not all blockchains use cryptocurrencies. Private blockchains may not require a native asset to add new data or transactions to the blockchain.

Protocols are sets of rules used by blockchains. Blockchain protocols range from open-source public networks, such as Bitcoin, to tools designed for enterprise use, such as Quorum.

The white paper Bitcoin: A Peer-to-Peer Electronic Cash System outlined the implementation of Bitcoin’s blockchain technology. The paper was published by Satoshi Nakamoto, the person or group who created Bitcoin, but that name is widely accepted to be a pseudonym.

Nakamoto claims that the problem with current financial institutions is that they rely on trust. Payees have to trust a bank, and the bank needs to vouch for payments. Blockchains, on the other hand, provide a non-alterable record of all transactions and are available to all parties. This system gives users proof of transactions and removes the necessity for centralized management and trust in a mediator.

The blockchain revolution began with a blueprint for a trustless peer-to-peer payment system, Bitcoin. In the years ahead, blockchain technology will lead to much more advanced applications, some of which we have yet to imagine.

The features of blockchain technology can vary depending on the type of blockchain in use, i.e., public or private. Public blockchains typically bring the following features.

The role of blockchains in securing transactions and data makes blockchains well-suited to a number of use cases. These range from more efficient and fair access to decentralized finance (DeFi) services to government services, including voting.

Blockchains can replace or complement many current solutions typically served by centralized databases or centralized providers. In comparison to other technologies, blockchain has several advantages but may not be well-suited to other applications.

Many public blockchains are open-source, meaning the code is openly available for review. This transparency aids in security by making the code accessible to a worldwide community of coders and security experts. Reputable blockchain projects also source third-party audits to help identify potential exploits or unplanned behavior.

Internally, blockchains use one of several types of consensus mechanisms to validate transactions and agree on the state of the blockchain. The most common of these are proof of work and proof of stake, but other options include proof of history (PoH), used by Solana, and proof of capacity (PoC) or PoC+, used by Signum.

Chains are formed by linking each block to the previous block by using a cryptographic hash of the previous block’s header. Any attempt to change an existing block changes every subsequent block. The network protocol causes the nodes to flag these changed blocks as invalid.

Linking combined with consensus makes blockchains immutable, also making them more secure compared to database records that can be easily changed.

Blockchain can make everyday activities much more efficient while also offering more secure forms of ownership through blockchain tokens. Gaming and finance are the most likely ways most consumers will interact with blockchains first.

However, businesses are already using blockchain technology for supply chain to internal asset management. Improved interoperability between blockchains could open a world of possibilities in which assets held on one blockchain can be used elsewhere.

The technologies in the blockchain networks of tomorrow may differ from the blockchains of today, however. Many improvements in how blockchains scale are already being implemented, such as Ethereum’s Dencun upgrade that could boost the network’s speed to 100,000 transactions per second (TPS), compared to Visa, which processes about 1,700 TPS. Projects like Chainlink and blockchains like Avalanche and Polkadot are already working to improve interoperability between networks.

Newer blockchain technology could also change how we think about decentralized ledger architecture, however, and even expand blockchain’s broad definition.

Projects like Avalanche, Hedera, and Kaspa use directed acyclic graphs (DAGs) rather than chains of blocks. This structure allows parallel block validation, ordering the blocks as they are validated while bringing much faster transaction speeds compared to many older chains.

Blockchains provide a tamper-resistant and decentralized way to settle transactions and store data. Public blockchains like Bitcoin and Ethereum offer equal access and the ability to transact without intermediaries.

Smart-contract-enabled networks, such as Ethereum or Solana, also bring the ability to host computer programs on the blockchain, opening a new world of functionality from gaming to finance to real estate sales. Private and public sector applications abound as well, with blockchain already in use in many industries and applications ranging from supply chain management to finance.