Blockchain Basics

What is Blockchain?

A blockchain is a distributed, decentralized ledger that records transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks. This allows the participants to verify and audit transactions independently and relatively inexpensively.

A visual representation of how blocks are linked in a blockchain

Key Components of Blockchain

1. Distributed Ledger

All network participants have access to the distributed ledger and its immutable record of transactions. With this shared ledger, transactions are recorded only once, eliminating the duplication of effort that's typical of traditional business networks.

2. Immutable Records

No participant can change or tamper with a transaction after it's been recorded to the shared ledger. If a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible.

3. Smart Contracts

To speed transactions, a set of rules — called a smart contract — is stored on the blockchain and executed automatically. A smart contract can define conditions for corporate bond transfers, include terms for travel insurance to be paid, and much more.

How Blockchain Works

1. Transaction Request

   A transaction is requested and authenticated using cryptographic keys.

2. Block Creation

   The transaction is combined with other transactions to create a new block of data for the ledger.

3. Verification

   The block is sent to every node in the network, where it's verified and added to the chain.

4. Confirmation

   Once verified, the block is added to the existing blockchain, in a way that is permanent and unalterable.

5. Transaction Complete

   The transaction is complete and recorded across all copies of the distributed ledger.

Types of Blockchain Networks

Public Blockchains

Public blockchains are open, decentralized networks of computers accessible to anyone wanting to request or validate a transaction. Examples include Bitcoin and Ethereum.

Private Blockchains

Private blockchains are invitation-only and governed by a single entity. Participants need permission to join and may have limited rights within the network. These are typically used by enterprises for internal purposes.

Consortium or Federated Blockchains

These operate under the leadership of a group rather than a single entity. They offer many of the same benefits as private blockchains but are run by a group of companies rather than a single entity.

Applications of Blockchain Technology