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What Is Blockchain? | Blockchain Explained
Blockchain is a distributed digital ledger that stores data of any kind. A blockchain can record information about cryptocurrency transactions, NFT ownership, DeFi smart contracts or any other valuable information.
While any conventional database can store this sort of information, blockchain is unique because it is decentralized. Identical copies of a database are distributed across an entire network (i.e. multiple computers aka nodes around the world), so it is very difficult to hack or cheat the system.
How Does Blockchain Work?
Let’s start with the meaning of the word “blockchain”. It is actually a chain that consists of individual blocks. Each new block with new data is attached to existing blocks. And thus the chain is growing constantly. And all the nodes of the network are constantly updating their version of the blockchain ledger to be identical.
One person or a single node cannot make changes into the chain. All the changes must be verified to confirm their legitimacy. Only after verification the new data is added to the ledger.
The most famous blockchain project nowadays is bitcoin. And it’s the easiest example of how blockchain works. Each bitcoin transaction has to be verified to make sure coins are not being spent more than once or sent to the wrong wallet.
There is a minimum number of nodes to validate each transaction. And only when consensus is reached, the new block is added to the chain. Since blocks are securely linked together and the whole ledger is stored in multiple copies, there is no chance somebody can interfere.
Every chain consists of multiple blocks and each block has three basic elements:
- The data in the block
- A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash
- The block header hash. It is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes
When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash.
One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning.
Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology.
What makes the blockchain platform so secure is the cryptography that is used for transactions. Each node has to solve complex mathematical equations to process every transaction. That’s why bitcoin mining is so power hungry. And that’s why miners do get rewards for taking part in validation of the transactions.
If you are a miner, you dedicate your computing power to validating new blocks of data in the blockchain and you get native currency of this blockchain in return.
A simple analogy for understanding blockchain technology is a Google Doc. When you create a document and share it with a group of people, the document is distributed, not copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent.
Of course, blockchain is more complicated than a Google Doc, but the analogy is apt because it illustrates three critical ideas of the technology.
Who Invented Blockchain?
Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two mathematicians who wanted to implement a system where document timestamps could not be tampered with.
In the late 1990s, cypherpunk Nick Szabo proposed using a blockchain to secure a digital payments system, known as bit gold.
That system was never implemented.
But almost a decade later Satoshi Nakamoto in his famous paper proposed blockchain as a foundation for the first cryptocurrency ever. And thus Bitcoin was born.
How Is Blockchain Used?
Blockchain technology is used for many different purposes, all of them relying on it’s security and scalability.
Bitcoin was the beginning of the blockchain era. Nowadays almost all cryptocurrencies that exist are based on the blockchain networks (Ethereum, Cardano, Solana etc). Every transaction is recorded on a blockchain. That’s what guarantees the security of your payments and savings in cryptocurrencies.
Although the world banking system still relies heavily on fiat currency (like dollars or euros), it has started using blockchain platforms very actively.
Transactions in fiat currencies can be verified and recorded on a blockchain. It makes transactions faster and they don’t need human check ups.
Ownership of the assets is a rather new application for blockchain technology. But it is becoming more and more popular.
One can easily name NFT as an example. You can own a piece of digital art secured on a blockchain, and some of NFTs are nowadays worth millions of dollars.
But blockchain usage goes far beyond that.
Many countries are already applying blockchain technologies to store the records of ownership in many industries and sectors of economy. For instance, many countries already register real-life assets like real estate or vehicles through blockchain. Some countries even provide multiple state services to their citizens through blockchain apps. In Ukraine, for example, citizens can leave their official documents (i.e. driver’s license, COVID certificate) at home since most of them have official apps based on a blockchain that contain the digital copies of the documents.
In some countries blockchain technology even allows to process deals with real estate or vehicles without third parties. The seller and the buyer both use apps on the same blockchain network, and since the network is able to verify that the seller has the rights to sell and the buyer has the money to buy, the deal gets a record on the blockchain. No paperwork is needed and the official government records are updated automatically since they are using the same blockchain platform.
Using blockchain programmers can create tokens to represent any kind of digital asset. It is possible to track its ownership and execute its functionality according to a set of programming instructions.
Tokens can be widely used, for instance, in cryptocurrency or NFTs.
Tokens can be music files, contracts, concert tickets or even a patient’s medical records. Most recently, Non-Fungible Tokens (NFTs) have become all the rage. NFTs are unique blockchain-based tokens that store digital media (like a video, music or art). Each NFT has the ability to verify authenticity, past history and sole ownership of the piece of digital media. NFTs have become wildly popular because they offer a new wave of digital creators the ability to buy and sell their creations, while getting proper credit and a fair share of profits.
All these new uses for blockchain have broadened the potential of the ledger technology. It now enters other sectors like media, government and identity security. Thousands of companies are currently researching and developing products and ecosystems that run entirely on blockchain technology.
Blockchain is challenging the current status quo of innovation by letting companies experiment with groundbreaking technology like peer-to-peer energy distribution or decentralized forms for news media. Much like the definition of blockchain, the uses for the ledger system will only evolve as technology evolves.
There is another blockchain innovation that makes the technology very useful for new digitized economy.
There are blockchain based self-executing contracts, most commonly called “smart contracts.”
These digital contracts are enacted automatically once initial conditions are met. The deal is described in advance with some parameters, and once the buyer and seller have met these parameters, the deal is done.
Once again, the main advantage of blockchain technology is the ability to verify the conditions of the deal without third parties. Many things can be done much faster and do not require human resources, for instance not limited to working hours.
Industry Supply Chain Monitoring
Many industries have already started to use blockchain platforms and technologies to monitor supply chains.
Huge companies operate millions or sometimes billions of items in their workflow. Traditional documentation cannot handle all this information with the ease and precision that blockchain networks can provide.
Healthcare providers can use blockchain to securely store their patients’ medical records.
When a medical record is generated and signed, it can be written into the blockchain, which provides patients with the proof and confidence that the record cannot be changed.
These personal health records could be encoded and stored on the blockchain with a private key, so that they are only accessible by certain individuals, thereby ensuring privacy.
Politics, Sociology and Voting
Many politicians are obsessed with the idea of so-called “direct democracy”. It is the concept that people don’t need any intermediary voters to vote for their will.
Blockchain technologies might be the solution to this.
In theory, blockchain voting would allow people to submit votes that couldn’t be tampered with as well as would remove the need to have people manually collect and verify paper ballots.
You might soon be able to vote for the next president simply from your smartphone via a blockchain based app.
The process of recording property rights is both burdensome and inefficient. A physical deed must be delivered to a government employee at the local recording office, where it is manually entered into the county’s central database and public index.
If a property dispute arises, claims to the property must be reconciled with the public index.
This process is not just costly and time-consuming, it is also prone to human error, where each inaccuracy makes tracking property ownership less efficient.
Blockchain has the potential to eliminate the need for scanning documents and tracking down physical files in a local recording office.
If property ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and permanently recorded.
In war-torn countries or areas that have little to no government or financial infrastructure, it can be nearly impossible to prove ownership of a property.
If a group of people living in such an area is able to leverage blockchain, then transparent and clear timelines of property ownership could be established.
Ability To Create Private Blockchain Platforms
Blockhains can be both public and private. As for the public (i.e. Bitcoin network) everything is simple. Anyone can participate in the blockchain, for instance, audit the network. Every record is visible to anyone. And this transparency actually makes the blockchain network invincible because no single node can alter the past records. So once the transaction is verified by multiple nodes, the record of it is stored in all the copies of the blockchain dispatched at multiple nodes all over the world.
It is a different story with private blockchain networks.
Any organization or a group of people can start their own blockchain.
The owners solely decide who has access to the blockchain. Also owners might control all the nodes and thus have all the means to alter the blockchain with all its records.
Private blockchains are already gaining popularity among business corporations who want to store their data in-house. Compared to traditional servers, blockchains give more security options. Multiple nodes can store valuable data more securely that servers with primitive backup options.
Advantages of Blockchain Explained
Blockchain has some obvious advantages over traditional ways of storing information.
Higher Accuracy of Transactions
When talking about huge financial transactions, people are always afraid of possible mistakes. Blockchain is there to help. Every transaction has to be verified by multiple nodes. Multiple verifications reduce even slightest probability of errors. What happens if one node somehow makes a mistake or there is some fraud going on? Well, other nodes will see it and catch the error.
No Need for Intermediaries
Using blockchain, two parties in a transaction can confirm and complete a deal or sale without working through a third party, like a bank or a lawyer.
It brings apparent advantages to a fast growing industry of digital commerce and helps to do many commercial operations with the help of quite simple internet applications.
Blockchain does not store any of its information in a central location.
Instead, the blockchain is copied and spread across a network of computers.
Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the information, rather than the entire network, would be compromised.
One doesn’t need a central office of huge data storage to operate the network. A decentralized network, often run by enthusiasts, is significantly cheaper than a whole infrastructure built from scratch.
Security of Data
After a block has been added to the end of the blockchain, it is extremely difficult to go back and alter the contents of the block unless a majority of the network has reached a consensus to do so.
It is nearly impossible to make fraudulent transactions in the decentralized blockchain network.
Frauds would need to hack or somehow break every node in the network in order to falsify the blockchain records.
In theory it might be possible, but only if one has total control over the whole network.
And almost every blockchain system nowadays uses some kind of defence against such attacks. Most often it is either proof-of-stake or proof-of-work transaction verification methods.
No Need For Manual Confirmation
Since blockchains operate 24/7, people can make more efficient financial and asset transfers, especially internationally. They don’t need to wait days for a bank or a government agency to manually confirm everything.
Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage.
Blockchain eliminates the need for third-party verification and, with it, their associated costs.
For example, business owners incur a small fee whenever they accept payments using credit cards, because banks and payment-processing companies have to process those transactions.
Banking For Everybody
Perhaps the most profound advantage of blockchain and Bitcoin is the ability for anyone, regardless of ethnicity, gender, or cultural background, to use it.
According to The World Bank, an estimated 1.7 billion adults do not have bank accounts or any means of storing their money or wealth.
Nearly all of these individuals live in developing countries, where the economy is in its infancy and entirely dependent on cash.
People have to store their savings in hidden locations in their homes or other places of living, leaving them subject to robbery or unnecessary violence.
At the same time reys to a bitcoin wallet can be stored on a piece of paper, a cheap cell phone, or even memorized if necessary.
Disadvantages of Blockchain
Despite all the aforementioned pluses, blockchain networks have some troubles of their own.
Limit on Transactions per Second
Large network of nodes that store the blockchain records and verify transactions might not always be blazing fast. There is usually a limit to how quickly the transactions can be moved.
In some cases there is a vast difference between what blockchain can do and the capabilities of the traditional systems.
While being significantly more secure, Bitcoin is much slower than, say, banking systems like Visa or Mastercard. Bitcoin can only process 4.6 transactions per second versus 1,700 per second with Visa.
That’s a bottleneck for widespread usage of cryptocurrencies for now.
Nobody is going to wait for five minutes when a simple bill for a cup of coffee needs to be paid. That’s why proof-of-stake system is gaining popularity over proof-of-work. It’s simply much faster.
In addition, increasing numbers of transactions can create network speed issues. And that leads to problems with scalability.
High Energy Costs
Once again security advantages of blockchains come with a price.
There is a need for multiple nodes to make blockchain platforms work securely. And all these nodes require much more electricity than simple old school servers even when they have their own backup servers.
And thus every transaction on a blockchain network is more expensive than usual systems. Also the large carbon burden and its impact on the environment should not be forgotten.
Risk of Asset Loss
Many digital assets stored on blockchain networks are secured with digital keys. A user needs to guard this key. Once lost the key is impossible to recover. And the assets will be lost then.
As the network is decentralized you cannot call your bank or some authority and ask for your backup key. Blockchain network demands every user to be responsible for his assets.
That’s why roughly a quarter of all Bitcoins mined until now have been lost. People simply don’t remember security keys to their blockchain wallets.
Blockchain’s decentralization adds more privacy and confidentiality, which unfortunately makes it appealing to criminals.
Illicit transactions are much harder to track when they are made on blockchain than through bank transactions that are tied to a name or a card number.
Of course, public blockchain platforms are open and transparent, so one can relatively easily follow the history of transactions between different crypto wallets.
But most of these wallets can be absolutely anonymous. And it might be very difficult to follow the assets from the previous owner to a new one.
Why is there so much hype around blockchain technology?
It’s not hype actually, but one can call it an excitement.
There have been many attempts to create digital money in the past, but they have always failed. Mostly because of the problems with trust.
If someone creates a new currency, how can we trust that they won’t give themselves a million of the new coins, or steal your coins for themselves?
Bitcoin was designed to solve this problem by using blockchain. The security of your coins is guaranteed by the security of a decentralized network. With every transaction needing multiple confirmations.
Most normal databases, such as an SQL database, have someone in charge who can change the entries (e.g. giving themselves those coins). Blockchain is different because nobody is in charge; it’s run by the people who use it.
So no one can intrude in the network’s work, even being a very advanced hacker.
Multiple copies of the core database make it impossible to steal someone’s money.
What types of Blockchain are out there?
Public blockchain networks
A public blockchain is one that anyone can join and participate in, such as Bitcoin. Drawbacks might include substantial computational power required, little or no privacy for transactions, and weak security. These are important considerations for enterprise use cases of blockchain.
Private blockchain networks
A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network. However, one organization governs the network, controlling who is allowed to participate, execute a consensus protocol and maintain the shared ledger. Depending on the use case, this can significantly boost trust and confidence between participants. A private blockchain can be run behind a corporate firewall and even be hosted on premises.
Permissioned blockchain networks
Businesses who set up a private blockchain will generally set up a permissioned blockchain network. It is important to note that public blockchain networks can also be permissioned. This places restrictions on who is allowed to participate in the network and in what transactions. Participants need to obtain an invitation or permission to join.
Multiple organizations can share the responsibilities of maintaining a blockchain. These pre-selected organizations determine who may submit transactions or access the data. A consortium blockchain is ideal for business when all participants need to be permissioned and have a shared responsibility for the blockchain.
How to Invest in Blockchain
That’s a very popular and a very misleading question.
You actually can not in blockchain because blockchain is just a platform used for some purposes. For example, it might be used as a basis for some cryptocurrency. So you can invest into that cryptocurrency, not the blockchain itself.
Buying Bitcoin or Ethereum is in some way investing in blockchain, if you will.
How Many Blockchains Are There?
The number of live blockchains is growing every day at an ever-increasing pace.
As of 2022, there are more than 10,000 active cryptocurrencies based on blockchain, with several hundred more non-cryptocurrency blockchains.
Some blockchains are being implemented by governments for state purposes.
Why is Blockchain important?
Business runs on information. The faster it’s received and the more accurate it is, the better.
Blockchain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members.
A blockchain network can track orders, payments, accounts, production and much more. And because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, as well as new efficiencies and opportunities.
How To Become A Blockchain Developer?
There are two types of Blockchain developers who do different things and require different knowledge.
You might become a Core Blockchain Developer or a Blockchain Software Developer.
A Core Blockchain Developer designs the security and the architecture of the proposed Blockchain system. In essence, the Core Blockchain Developer creates the foundation upon which others will then build upon.
Blockchain Software Developers use the core web architecture to build infrastructure and create apps, specifically the decentralized (dapps) and web varieties.
Perhaps there may be situations where the same person fulfills both roles, most likely in cases where the business is small, and people traditionally wear more than one hat.
Anyways, the everyday responsibilities and roles of the Blockchain developer are:
- Design the Blockchain protocols
- Design the network architecture that can be used for the centralizing or decentralizing the data
- Backend development according to the Blockchain protocols
- Developing front-end designs according to client requirements
- Developing and monitoring any smart contracts
The Blockchain developer’s responsibility is to develop innovative solutions to challenging problems, including solutions for command and control, and high integrity. The developer also performs complex analysis, design, development, testing, and computer software debugging, specifically for distinct product hardware or for technical service lines of businesses. Develops perform software design, operating architecture integration, and computer system selection. Finally, they operate on multiple systems and apply knowledge of one or more platforms and programming languages.
Of course, obstacles are awaiting the Blockchain developer. For instance, the developer has to work with legacy infrastructure and its limitations, while still meeting the expectations inherent in a Blockchain development project. Also, there are the challenges of understanding the technical practicality of implementing decentralized cryptosystems, processes that fall outside of the traditional IT development skill-set, which means a Blockchain developer needs specialized skills.
How Does One Become a Blockchain Developer?
So, after all of that, the questions present itself: with all of these responsibilities, how does one train someone with the necessary skills to let them rise to the challenge of Blockchain development? There are two different situations at work here. There are the Blockchain hopefuls who are starting completely from scratch, having no background in programming whatsoever, and those who have experience in careers that share similarities with Blockchain.
What Kind of Mindset Do You Need to Become a Blockchain Developer?
Before we dive into those two different types of people aspiring to become Blockchain developers, it may help to familiarize ourselves with the kind of mindsets that are best suited for Blockchain developers. After all, the unique challenges of Blockchain development require a certain unique way of thinking.
Whenever you hear the word “hacker” spoken aloud, it’s not usually in a positive light; no self-respecting business wants anything to do with hackers (well, except for ethical hackers, but that’s a different story for a different time). However, it’s precisely the hacker mentality that helps make good Blockchain developers. That’s because hackers tend to think outside the box when faced with problems and obstacles, rather than engage in conventional thinking.
Furthermore, a good Blockchain developer works well with a team and can collaborate. On a related point, the ideal Blockchain developer knows when to ask for help with a problem and when to keep plugging away by themselves until they arrive at the answer.
So the best candidate for Blockchain development works well with others, knows his or her limitations, and can unconventionally approach problems.
Blockchain Security Issues
Blockchain technology has gained a reputation of tamper-less. In reality, it is vulnerable to cyberthreats. Some vulnerabilities are still theoretical, while some have been already exploited by hackers.
There are a few real-world examples of when blockchains were compromised.
Phishing is when a scammer tries to lure sensitive information or data from you by disguising themselves as a trustworthy source.
In such cases hackers use platforms like text messages, emails, and even phone calls to do it. Phishing messages might entice blockchain users to provide their unique ID associated with a blockchain account or encourage them to click a link that gains access to a blockchain network.
Code exploitation is when a blockchain user — or cybercriminal pretending to be a blockchain user — identifies a weak spot in a blockchain’s software and exploits that weakness with malicious intent.
Most common forms of routing attacks include denial of service attacks and man-in-the-middle attacks. In both instances, cybercriminals stealthily intercept data as it’s transferred across a network, usually a weak Wi-Fi network.
In the instance of blockchain of technology, cybercriminals essentially lurk on a weak network a permissioned blockchain user is on. The permissioned user has no idea the information they’re adding to a blockchain or verifying in a blockchain is being monitored and, therefore, potentially compromised.
As we mentioned before, every blockchain user is granted a unique identifier to enter a blockchain network. The identifier is called private keys. And hackers often are eager to steal them.
A cybercriminal can attempt to alter information in a blockchain under a permissioned users’ key.
Blockchain technology might seem advanced, but it’s no less vulnerable to good ’ole computer hacks — even in the form of a malicious individual sitting right in your computer chair and accessing a blockchain network you’ve been granted permission to.
This is one of the most widely discussed methods of hacking the blockchain. Especially cryptocurrencies, like Bitcoin.
Cryptocurrency networks validate the transactions before adding them to the block. The cornerstone of this kind of security system is the fact that the validation process includes different nodes operated by different users.
But still, there is a chance of fraud if someone gains 51% control of the nodes in the blockchain network. That would be enough to properly validate some changes in the blocks (for instance, change ownership of some coins) and the rest of the network would have to accept these changes as properly validated.
For instance, users can essentially command a Bitcoin network if they’re able to control more than 50% of the computing power of the underlying blockchain.
Of course, this kind of attack requires immense efforts and huge computational power. All because of the proof-of-work system that is securing the Bitcoin blockchain.
What is a blockchain?
A blockchain is a distributed, cryptographically-secure database structure that allows network participants to establish a trusted and immutable record of transactional data without the need for intermediaries. A blockchain can execute a variety of functions beyond transaction settlement, such as smart contracts. Smart contracts are digital agreements that are embedded in code and that can have limitless formats and conditions. Blockchains have proven themselves as superior solutions for securely coordinating data, but they are capable of much more, including tokenization, incentive design, attack-resistance, and reducing counterparty risk. The very first blockchain was the Bitcoin blockchain, which itself was a culmination of over a century of advancements in cryptography and database technology.
What is blockchain software?
Blockchain software is like any other software. The first of its kind was Bitcoin, which was released as open source software, making it available to anyone to use or change. There are a wide variety of efforts across the blockchain ecosystem to improve upon Bitcoin’s original software. Ethereum has its own open source blockchain software. Some blockchain software is proprietary and not available to the public.
What is a blockchain database?
Historically, databases have incorporated a centralized client-server architecture, in which a sole authority controls the central server. This design means that data security, alteration, and deletion rests with a single point of failure. The decentralized architecture of blockchain databases emerged as a solution for many of the weaknesses of centralized database architecture. A blockchain network consists of a large number of distributed nodes––voluntary participants who must reach consensus and maintain a single transactional record together.
What is a blockchain system?
A blockchain system refers to all the aspects and features that go into a particular blockchain, everything from the consensus algorithm to the state machine to cryptographic functions. As Andreas Antonopoulus and Gavin Wood note in Mastering Ethereum, there are “a huge variety of blockchains with different properties”––qualifiers “help us understand the characteristics of the blockchain in question, such as open, public, decentralized, neutral, and censorship-resistant.”
How does a blockchain work?
When a digital transaction occurs in a blockchain network, it is grouped together in a cryptographically-secure “block” with other transactions that have occurred in the same time frame. The block is then broadcast to the network. A blockchain network is comprised of nodes or participants who validate and relay transaction information. The block of transactions is verified by participants called miners, who use computing power to solve a cryptographic puzzle and validate the block of transactions. The first miner to solve and validate the block is rewarded. Each verified block is connected to the previously verified block, creating a chain of blocks. One important cryptographic underpinning of blockchains is the hash function. Hashing assigns a fixed value to a string that is inputted into the system. Blockchain hashing power results in a deterministic, quickly-computable, and preimage-resistant system. Explore our knowledge base to learn more about how a blockchain works.
What is a blockchain application?
Blockchain applications are comparable to conventional software applications, except they implement a decentralized architecture and cryptoeconomic systems to increase security, foster trust, tokenize assets, and design new network incentives. Here are over 90 Ethereum apps that are currently being used across the Ethereum blockchain ecosystem, from prediction markets to smart legal agreements.
What are the benefits of blockchain technology?
Blockchain technology has a wide variety of benefits, for both global enterprises and local communities. The most commonly cited benefits of a blockchain are trusted data coordination, attack-resistance, shared IT infrastructure, tokenization, and built-in incentivization.
What is the blockchain revolution?
Blockchain is considered a disruptive technology because of its ability to safeguard personal information, reduce intermediaries, unlock digital assets, and potentially open up the global economy to millions more participants. Sometimes called the Trust Machine, blockchain technology is bringing transparency and security to digital networks across countless industries. In many ways, the blockchain revolution can be considered a revolution in trust.
What is decentralized finance (DeFi)?
Decentralized finance—often called DeFi or open finance—refers to the economic paradigm shift enabled by decentralized technologies, particularly blockchain networks. DeFi signals the shift from a historically centralized and closed financial system toward a universally accessible economy that is based on open protocols that are interoperable, programmable, and composable. From streamlined and secure payment networks to automated loans to USD-pegged stablecoins, decentralized finance has emerged as one of the most active sectors in the blockchain space. Some of the defining factors of a DeFi application include permissionless architecture (anyone can participate), transparent and auditable code, and interoperability with other DeFi products. DeFi Score offers a single, consistently comparable value for measuring DeFi platform risk.
What is a block in a blockchain?
The “block” in a blockchain refers to a block of transactions that has been broadcast to the network. The “chain” refers to a string of these blocks. When a new block of transactions is validated by the network, it is attached to the end of an existing chain. This chain of blocks is an ever-growing ledger of transactions that the network has validated. We call this single, agreed-upon history of transactions a blockchain. Only one block can exist at a given chain height. There are several ways to add new blocks to an existing chain.
What is block time?
Depending upon how a particular blockchain protocol was developed, the time that it takes for a block to be added to the canonical chain can vary widely. A blockchain is a linear construct in that every new block occurs at a later time than the one that preceded it and cannot be undone. A blockchain’s linearity serves as an ideal form of validation.
What is distributed ledger technology?
Distributed ledger technology is a broad category that encompasses blockchain technology. A distributed ledger is just what its name implies. Instead of accounting for data through one centralized computer, distributed ledger technology uses many participants in a network to maintain a digital record. Blockchain technology supplements a distributed ledger with cryptographic functions and a consensus algorithm to enable greater incentive design, security, accountability, cooperation, and trust.
What is a blockchain wallet?
A blockchain wallet contains the public key for others to transfer cryptocurrency to your address and the private key so you can securely access your own digital assets. A blockchain wallet usually accompanies node hosting and stores cryptocurrencies on your computer. The safest place for storing digital assets is offline, what is often called “cold storage.” Read “7 Pro Tips for Keeping Your Crypto Safe” for some best practices on protecting your digital assets.
What is blockchain programming?
As a new technology that makes use of global digital networks, the need for blockchain programmers is immense, and in recent years, programmers have flocked to the blockchain space. A key aspect that distinguishes blockchain programming from other Internet ventures is the focus on security and cryptography. ConsenSys Academy’s Developer Program offers programmers from any background the chance to become a blockchain expert in weeks. Industry experts from around the world teach the course, which focuses on Ethereum blockchain development.
What is a blockchain company?
A blockchain company is simply a company that is invested in and/or developing blockchain technology. State of the Dapps ranks blockchain-based decentralized applications by user activity and Forbes recently released a report covering the top 50 billion-dollar companies exploring blockchain.
What is a private blockchain?
Blockchains began as open source, public efforts. Private blockchains were developed as corporations and other administrative bodies began to realize the benefits of distributed ledger technology, particularly within systems of a private enterprise and when managing sensitive transaction data. With increasingly robust and modular privacy and permissioning solutions, industry experts anticipate that private and public blockchain networks will converge.
What are zk-SNARKs?
zk-SNARK is an acryonym for zero-knowledge succinct non-interactive argument of knowledge, a cryptographic proof system that enables a user to verify a transaction without revealing the actual data of the transaction, and without interacting with the user who published the transaction. In the context of a blockchain, zk-SNARKs allow users to maintain private transactions, while still validating the transactions according to the network’s consensus algorithm..
What is the Future of Blockchain
Some analysts say blockchain is our inevitable future. This technology is already conquering the world. And it becomes more and more perfect.
Others claim blockchain needs to overcome lots of issues including slow speed, energy efficiency and government regulations until it becomes the driving force of the internet.