What is Blockchain Technology?

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Over the past decade, an alternative digital paradigm has slowly been taking shape at the edges of the internet.

This new paradigm is the blockchain. After incubating through millions of Bitcoin transactions and a host of developer projects, it is now on the tips of tongues of CEOs and CTOs, startup entrepreneurs, and even governance activists.

Though these stakeholders are beginning to understand the disruptive potential of blockchain technology and are experimenting with its most promising applications, few have asked a more fundamental question: What will a world driven by blockchains look like a decade from now?

Vitalik Buterin, Ethereum founder

“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”

In 2008, Satoshi Nakamoto conceptualized the first distributed blockchain. By 2009, Nakamoto materialized the technologies core components within Bitcoin, serving as the public ledger for all transactions.

A blockchain database is managed autonomously through the use of a peer-to-peer network and a distributed timestamping server. This innovation has influenced the design for other applications.

In 2014, the term “Blockchain 2.0” came to refer to new applications using the distributed blockchain database. One implementation of this second-generation programmable blockchain was that it included a programming language that allows users to write more sophisticated smart contracts, thus creating invoices that pay themselves when a shipment arrives or share certificates which automatically send their owners dividends if profits reach a certain level.

In 2016, the central securities depository of the Russian Federation (NSD) announced a pilot project based on the Nxt Blockchain 2.0 platform that would explore the use of blockchain-based automated voting systems.

Various regulatory bodies in the music industry have started testing models that use blockchain technology for royalty collection and management of copyrights around the world.

In 2017, the Harvard Business Review suggested that blockchain is a foundational technology and thus “has the potential to create new foundations for our economic and social systems.” It further observed that while foundational innovations can have enormous impact, “It will take decades for blockchain to seep into our economic and social infrastructure.”

A blockchain facilitates secure online transactions. A blockchain is a decentralized and distributed digital ledger that records transactions across many computers.

These records cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network. This allows the participants to verify and audit transactions inexpensively.

The use of a blockchain removes the characteristic of infinite reproducibility from a digital asset. It confirms that each unit of value was transferred only once, solving the long-standing problem of double spending.

Blockchain-based exchange of value can be completed more quickly, more safely and more cheaply than with traditional systems.

A blockchain database consists of two kinds of records: transactions and blocks.

An example of a binary hash tree. Hashes 0-0 and 0-1 are the hash values of data blocks L1 and L2, respectively, and hash 0 is the hash of the concatenation of hashes 0-0 and 0-1. (Wikipedia.org image)

Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree. Each block includes the hash of the prior block in the blockchain, linking the two.

The linked blocks form a chain. This repetitive process confirms the integrity of the previous block, all the way back to the original genesis block.

Some blockchains create a new block as frequently as every five seconds. As blockchains age they are said to grow in height.

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