What is Blockchain?¶
A blockchain is the term used to describe a modern distributed ledger technology (DLT). Traditional centralized databases have been employed for many years by entities, from governments to global institutions, to store data and record transactions of any kind. These are carefully-guarded and enclosed systems in which only authorized operators are allowed to make entries and govern the accuracy of data being stored. When a customer transfers money from one bank account to another, they make a request to the bank to do so on their behalf rather than engaging directly with the database that holds information about balances. Centralization is inherent in the existing paradigm.
At its simplest, the blockchain is a digital ledger that is stored on a network of computers around the world. Instead of securing information by restricting access, the blockchain shares information amongst all users that adhere to the protocol. For example, ownership of funds is cryptographically verified, and the full transparency and mutual ownership of the system means that a bad actor is immediately recognizable as such and any transactions submitted by such a malicious node are ignored.
The decentralised structure of the blockchain brings several key features in contrast to traditional centralized approaches:
- Transparency: It is possible for anyone to track the movement of funds from one account to another.
- Immutability: Once confirmed, a transaction cannot be reversed and no one can compromise a confirmed transfer.
- Cost Efficiency: Transaction fees are minimal and determined upfront by the sender.
- Cross-border: Funds can be sent as easily to someone on the other side of the world as they can to someone in the next room.
- Transaction Speed: Due to the flat and transparent nature of the blockchain, transfers show up almost instantly and are typically confirmed in minutes, rather than hours or days.
The following sections will be dedicated to explaining the fundamental concepts underpinning the blockchain.