What Is a Blockchain?

You might have heard of the term “blockchain” before if you have been surfing the web for any length of time. It seems to have taken on a life of its own these days, as people everywhere are talking about it and speculating about its uses. What exactly is it, though?


The Basics. Simply put, the Blockchain is an online ledger that allows for the transfer of digital currency. It works without a center or central point, relying instead on the distributed ledger technology called the Distributed Ledger Technology (DLT). A great deal of the privacy and efficiency of the system comes from the fact that all transactions are held by participants anonymous and are mathematically limited to two factors – i.e., by the size of their transactions and by the time they are made. The ledger is transparent and accessible only to the parties involved in the transaction.

The Blockchains themselves can be different in many ways. There are a number of protocols and software developers that have produced various implementations of the Blockchain concept. While some of these differ greatly from one another, most of them rely on one or more of the following models to function properly:

A Peer-to-peer Model. Under this model, you would need to find an interested, legitimate, trusted person who trusts the protocol, the system itself, and all of the other participants in the chain. Once you do, then you can start adding your information to the ledger, whether that is by signing onto a transaction or transferring funds. By doing so, you are publicly saying that you believe the system and all of the other blocks are honest and secure. After a while, you will probably be asked to upgrade to a bigger block and be part of the validating authority… eventually, the chain will grow into a larger network.

A Chained Together, Universal Channel Map. The basic idea here is that each user is supposed to know the state of their transactions and those of every other user in the same transaction. By “chaining” these states, the ledger becomes able to represent the actual state of the chain as a whole, instead of just each block of one by one transactions. When users want to check up on their own transactions, they can look at their chains and see that they are all chained together.

A Decentralized Distribution Method. This is used when you want to transfer money from one party to another but you want it to go through a specific, decentralized set of servers. In a traditional transfer transaction, a bank sends one transaction request to its financial intermediaries, then gathers together all the requests and sends the request out again. The distributed nature of the Blockchain means that anyone can participate in a transaction without needing to trust that the transaction is being fair given that there are multiple sets of servers sending the transaction requests to the intermediaries.

No Limits on Number of Chains. Unlike traditional ledgers, which allow for unlimited number of transactions per day, the Blockchain requires a “blockchain authority” to make changes to the ledger. This authority is usually a special software program who is in charge of ensuring that each transaction goes through according to the established rules of the entire chain. This also keeps the chains completely decentralized, allowing for endless number of chains and transactions.

There are many more terms used to describe what exactly is a Blockchain. A quick Google search shows that there are literally hundreds of articles and blog posts covering the subject. While the term can be confusing, it’s important to know that this new way of doing things, called the Blockchain, is very different than most methods that have been tried before. For more information on the different characteristics of the Cryptocurrency, keep reading.