What Is Blockchain? A Simple Explanation
Every day, we hear more and more about blockchain technology. The United Arab Emirates is moving its document management to blockchain, new startups based on blockchain are launching, and major banks like Sberbank are discussing initiatives to implement it. But what exactly is blockchain? This article is for those who know little or nothing about this technology, or who think they know.
Blockchain is a technology for securely and reliably storing records of all transactions ever made (primarily in the context of cryptocurrencies). It is essentially a chain of blocks, with its size constantly growing as miners (cryptocurrency miners) add new blocks containing the latest transaction records. This process typically happens every 10 minutes, although due to network congestion and high demand, it can now take 20–60 minutes.
Blocks are added to the blockchain in a linear, sequential, and chronological order. Each node—meaning every computer connected to the network using a client that verifies and transmits transactions—stores a copy of the blockchain. This copy is automatically downloaded when a miner joins the network. The ledger contains complete information about all addresses and balances, starting from the genesis block (the very first block of transactions) up to the most recently added block.
Blockchain technology is considered innovative because it serves as a “trustless” mechanism for verifying all transactions on the network. The key innovation of blockchain lies in its architecture, which enables decentralized transactions that do not require trust between parties. It eliminates the need for “trusted intermediaries” and allows for fully decentralized transactions of any type between any participants on a global scale.
In a system similar to blockchain, transactions can be made with any currencies, financial contracts, tangible and intangible assets. Moreover, blockchain can be used not only for transactions but also for recording, tracking, monitoring, and managing any type of asset.
In essence, blockchain is like a massive electronic spreadsheet for registering all assets and an accounting system for conducting operations with them globally, without restrictions on the form of assets, type of participants, or geographic location.
This means blockchain can become a tool for registering, accounting for, and exchanging any financial, physical (property), or intangible (voting rights, ideas, reputation, intentions, medical data, and more) assets.
This article is based on materials from the book: M. Swan – “Blockchain: Blueprint for a New Economy,” 2017. Highly recommended reading.