An Introduction to Blockchain & Distributed Ledgers

If you aren't exactly sure, then you are not alone! This primer from IBM explains things really simply and easily.

“To summarise, a blockchain is a tamper-evident, shared digital ledger that records transactions in a public or private peer-to-peer network. Distributed to all member nodes in the network, the ledger permanently records, in a sequential chain of cryptographic hash-linked blocks, the history of asset exchanges that take place between the peers in the network.

All the confirmed and validated transaction blocks are linked and chained from the beginning of the chain to the most current block, hence the name blockchain. The blockchain thus acts as a single source of truth, and members in a blockchain network can view only those transactions that are relevant to them.”

 

HOW DOES BLOCKCHAIN WORK?

 

Harvard Business Review provides a great  breakdown of the five basic principles underpinning blockchain technology

1. Distributed Database

Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary.

 

2. Peer-to-Peer Transmission

Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes.

 

3. Transparency with Pseudonymity

Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.

 

4. Irreversibility of Records

Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term “chain”). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network.

 

5. Computational Logic

The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.

 

 

 

For another explanation, check out this short whiteboard session walking through step by step how Blockchain works.

 

Beside cryptocurrencies, one of the most promising developments on blockchain is the use of smart contracts. The concept of smart contracts was first described by Nick Szabo in 1994 . He describes smart contracts as ‘a computerized transaction protocol that executes the terms of a contract’.

The rise of the Ethereum blockchain facilitates the easy development and deployment of smart contracts in a variety of different circumstances, opening up the application of blockchain across many industries and scenarios. IBM and Maersk are leading the way in disrupting the international trade market, by creating a new company, building a global trade platform using blockchain technology aimed at improving the cost of transportation, lack of visibility and inefficiencies with paper-based processes.

 

BLOCKCHAIN TIMELINE