ITHIS IS COMMON, in tech circles, to hear a simple yet confusing business pitch. “It’s gonna be like”X” [insert the name of any successful business], but on a blockchain. The enthusiastic entrepreneur is quick to assume that everyone is both familiar with the technology and in agreement on its merits. But what is a blockchain? And what are the advantages of using it?
A blockchain is a database that contains the history of all the information it was designed to store. It is made up of a chain of “blocks” of information that overlap into an immutable chain. Bitcoin, one of the first blockchains, was created in 2009. It stores data on bitcoin transactions, providing proof of who owns what at all times. What sets a blockchain apart from other databases is that its ledger is distributed, publicly available, and replicated on thousands of computers – or “nodes” – around the world. Rather than a centralized entity, such as a bank or technology platform, ensuring the accuracy of the general ledger, it is verified by a decentralized network of individuals.
Although Bitcoin’s blockchain is public, it is also trustworthy and secure. This is guaranteed by the blend of mathematical subtlety and computational brute force built into its ‘consensus mechanism’, the process by which nodes To verify new transactions and add them to the blockchain. Computers rush to solve a crypto problem – the first to do so wins newly mined coins – and a new block is added.
Newer blockchains, like Ethereum, store more information, such as lines of computer code. A function or application that can be programmed in code can be guaranteed to work as written. The Ethereum blockchain offers proof that the code has been executed. Developers can write conditional code – software that runs after a certain trigger – to configure “smart contracts”On future events.
Unlike private networks, open public blockchains are transparent (anyone can view them), permissionless (anyone can use them), and censorship resistant (no one can stop them). But because they require consensus, they can be slow and complex to build. Building applications who conduct financial activities and distribute digital content over a blockchain can therefore be trickier than going through trusted intermediaries. Building “X”On a blockchain may be a good idea, but it’s easier said than done.
This article appeared in the Briefing section of the print edition under the title “Building consensus”