Blockchain is a term that is becoming more commonly seen or heard in the news. This page provides a “101” explanation of blockchain.

Here are some of the ways to answer the question, “What is blockchain?”

Blockchain is a shared system of record-keeping. It is a way to keep track of information. We have many existing systems for record-keeping, but blockchain is unique in the way that the record keeping is “shared.”

You also can think of blockchain as a new paradigm for storing and updating data. Blockchain is “a public database that is updated and shared across many computers in a network” (ethereum.org).

The blocks in blockchain are groups (or “packages” or “batches”) of transactions. In this way, the blocks in the blockchain store data. A block is a recording of a batches of sequential transactions. Block size (number of transactions in each block) influences the transaction volume in a public blockchain network. Blocks can range in size from containing tens to hundreds of transactions.

A blockchain is a chain of blocks. Each block references the previous block, so a block’s data cannot be changed without changing all subsequent blocks. Such a change would require the consensus of the entire network, which is why blockchain data is referred to as “immutable” (unchangeable). The blockchain stores the sequence of all blocks that have been committed in the history of the network.

Rather than everyone having their own version of the data that must be regularly reconciled, blockchain is a single data repository that is shared and jointly maintained. Some people refer to it as a “single source of truth.”

Blockchain is a technology for sharing information using a distributed ledger. In other words, it is a form of distributed ledger technology (DLT). Blockchain uses the network of users to verify transactions rather than relying on an external authority. In this way, the blockchain becomes the “single source of truth.” You can think of it as an accounting system in which the ledger is public and distributed. Everyone can see it and there are multiple copies that are distributed throughout the network. Rather than storing account information in private ledgers owned by banks, DLT is a shared ledger that is public to all network participants. The information is shared in a public manner so that all participants have full transparency on the current status of the ledger. This is what makes blockchain so powerful as a technology for sharing information in other business applications, such as international supply chain management.

Maintaining the ledger is done by the community of users in a decentralized manner. Multiple members of the network must verify that the transaction is legitimate based on the existing ledger. This process is called the “consensus mechanism.” When the network verifies that new transactions are legitimate, the ledger is updated and shared with the network. This makes blockchain a powerful and efficient technology for sharing information among a diverse group of constituents. Many companies are exploring blockchain applications outside money, such as supply chain management.

The consensus mechanism for blockchain relies on the blockchain network. The computers in the network are known as “nodes”. For Bitcoin and Ethereum, this consensus mechanism is the process of mining.

Blockchain is the technology behind most cryptocurrency. It allows cryptocurrency to exist without a role for governments or banks as “trusted third parties.”

Glossary

Blockchain. A technology for sharing information using a distributed ledger