What Is a Blockchain?

Last updated on 11/29/2018

A blockchain is a database that uses a distributed network of computers to store and share data.

A blockchain network is decentralized, meaning that no single person, authority or organization has complete control over the entire network.

Key Features of a Blockchain

Blockchains can come in several forms. To a certain degree, all blockchains are characterized by the following attributes:

  • Decentralization. Again, no single party has sole control over the blockchain.
  • Redundancy. On a blockchain, data is spread across multiple devices (called nodes). This distributed architecture creates redundancy. If one node disappears, the data remains available on other nodes.
  • Immutability. Whenever someone creates a transaction, it is recorded on a permanent ledger that every computer on the network confirms. Once a transaction is confirmed, it cannot be reversed.
  • Voluntary participation. Anyone can contribute to a blockchain network or use the resources of a blockchain. Users have to contribute to the network in some way, usually by running a node or verifying transactions through a process called mining. Different blockchains have different methods of confirming transactions. The most common are called proof of work and proof of stake.

Blockchain Technology’s Origins

The first blockchain ever created was the Bitcoin blockchain, which originated in early 2009.

The Bitcoin blockchain was designed as a way to trustlessly send value to another party. However, other blockchains have been developed that are capable of doing much more than just sending money to others.

Blockchains and Cryptocurrency

Cryptocurrencies are not possible without blockchain technology. This is because cryptocurrencies are generally used as a mechanism to interact on a blockchain. They are the “physical” tokens that are transacted whenever two parties want to do anything that gets recorded on the blockchain. While some blockchains, like Bitcoin, focus on sending money, other blockchains, like Ethereum, EOS and others, are developing decentralized platforms where developers can build applications.

Blockchains Beyond Cryptocurrency

Blockchains can be used for running decentralized applications, or DApps. A DApp uses a blockchain to allow users to leverage an application without having to rely on a central server for data. Thus, DApp users don’t have to worry about an authority, like a company, altering data within the app.

Cryptocurrencies are frequently used as rewards for user participation on a blockchain network. On top of platforms like Ethereum, developers can build DApps with their own unique tokens and then reward users for doing certain things.

Permissioned Blockchains

Blockchains like Bitcoin and Ethereum are public and permissionless, meaning anyone can join them and use their networks. For this reason, they are considered truly decentralized.

However, it’s possible to create permissioned blockchains, which are more private and less decentralized. On a permissioned blockchain, a select group of people on the network control how the blockchain functions.

Permissioned blockchains are still partially decentralized, because the voting power available to each member of the group that makes decisions on the network is equal. Permissioned blockchains have become popular in business contexts as a way for companies to build decentralized platforms for sharing data or running applications with a select list of partners. Still, the public-at-large cannot use most permissioned blockchains.