Blockchain technology may seem complicated when going through its details but the main concept is actually very simple: blockchain is just a type of database.
Blockchain was invented in 1991 but applied for the first time in 2009 with the creation of Bitcoin. It takes its name from its special “chain of blocks” structure: the information is collected in blocks with limited capacity, which, once filled, are cryptographically linked to the previous block. This particular structure, when implemented together with other features, is able to confer immutability to the stored data.
How does the blockchain work?
An easy way to understand this technology is to think of the blockchain as a sort of “digital stone“, where new information can be added but from which existing information can never be removed.
In bitcoin, the blockchain is used to manage all transactions so that it’s not possible to remove those that have already occurred but new ones can be added. It is definitely a fundamental element but is often mistakenly considered the only one. In reality, the blockchain represents only one of several features that ensure the existence and the proper functioning of bitcoin.
The blockchain operates thanks to a network of computers in which each participant holds a copy of the ledger. In bitcoin, when a network participant wants to make a transaction, the others check on their copy of the blockchain to see if the one who wants to make the transaction has enough money available.
Requirements for an immutable and decentralized blockchain
In order to ensure immutability and security of data in a decentralized manner, however, the blockchain must have other essential characteristics, namely being:
- open to the public since a closed or private blockchain controlled by a central entity (or by a few subjects) can be modified and easily rewritten by those who control the network;
- worldwide distributed, without borders and without a nation that can take control;
- without third parties to trust, as it’s the network itself that ensures that the data are reliable;
- neutral, as the transactions are considered valid or invalid only according to the consensus algorithm;
- censorship resistant, meaning that none of the previous points can be undermined by one or more network participants.
Open vs closed blockchains
The blockchain is being experimented with in many areas with the most diverse uses. While bitcoin still meets with some skepticism, blockchain technology seems to be embraced by many as a major technological innovation capable of revolutionizing several industries. It has now become a buzz word, often used by startups to more easily attract investor money.
The blockchain itself, when taken individually, is a rather inefficient way of storing data and does not necessarily bring benefits where it is applied. Blockchain technology is only truly useful where decentralization, and therefore the elimination of trust in third parties, brings significant benefits that outweigh the inefficiencies and issues of a database built with a blockchain compared to other, typically more efficient, forms of databases.
Although the blockchain guarantees unique and enormously valuable properties (primarily immutability and transparency of data) only if it is truly decentralized and therefore equipped with the aforementioned elements, there are also so-called private blockchains that leverage the same technology within a closed system controlled by one or more actors.
However, the difference between open (public) and closed (private) blockchains, and their relative impact in terms of technological innovation, is huge. Closed blockchains are comparable in a sense to corporate intranets, certainly useful but certainly not comparable to their public equivalent that leverages the same underlying technology, namely the Internet.
Image Credits: Yegor Petrov
