What Is a Blockchain? Introduction to Digital Ledgers
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A blockchain is a digital ledger that records transactions both chronologically and publically. Blockchains are the underlying technology that power cryptocurrencies, dApps, and other crypto technologies. The technology was first conceived in 1991 and elements of blockchain were used in P2P technologies like Tor, torrents, cloud computing, and more.
Blockchains are powered by nodes, which are servers, computers, and other end-point machines hosting and processing transactions of the ledger. Transactions are grouped into “blocks,” and the chain of these is what gives the technology its name.
Blockchains fall into a variety of categories, and we’ll break down some of the terminology used in blockchain here.
Blockchains are often described as either decentralized or distributed, and there’s a difference between the two. With a decentralized blockchain, the same digital ledger in its entirety is located on every node of the network. In a distributed blockchain, each node holds a piece of the blockchain, and a P2P trust network is built.
First-generation blockchains like Bitcoin are pure cryptocurrencies with a single layer to for value store and transfer.
Second-generation blockchains like Ethereum add a second layer on top to process smart contracts. This enables the development of blockchain-based decentralized applications (dApps).
Third-generation blockchains like NEO also focus on sidechain interoperability to support off-chain transactions.
While cryptocurrencies like Bitcoin get all the press because of their large market caps, it’s the underlying blockchain technology that’s the real hero. Blockchain technology is used in every industry, including government, healthcare, utilities, supply chain management, financial services, and more.
Touted benefits of blockchain technology are its transparency and immutability, security, and network resilience. However, each of these has been tested aggressively during the technology’s infancy.
In real-world usage, blockchains like Bitcoin and Ethereum ran into issues with compatibility, market acceptance, and scalability. In addition, volatile pricing makes them a risky investment.
Still, blockchains that work are being quickly implemented by consumers, governments, and enterprises alike, and advocates believe it to be the future of internet technology.
For more reading, check out an article that’s actually written as a blockchain!