A non-technical introduction
We are at the very early stages of an exciting, emerging technology called blockchain. Much of the commentary and discussion to date is of either a highly-technical nature (blockchain technology) or is largely speculative in nature (cryptocurrency and initial coin offerings). To balance this, Blockchain Explained seeks to provide an overview of the key themes, trends and opportunities of the technology, but for a non-technical audience.
What is A Blockchain?
In simple terms, a blockchain is exactly that: a chain of blocks. You can think of these blocks as containers that hold records of transactions, with multiple transactions included per block.
These blocks are chained together, and use digital ‘fingerprints’ to confirm the authenticity of the sequence of the chain.
What this means is that the latest block added to the chain references the information contained within the preceding block, which itself references the information in the block previous to it, and so on. The chain is an unbroken record going all the way back to the very first block (known as the ‘Genesis block’).
This evidence of the sequence in which information was added to the chain makes the record permanent and unchangeable (“immutable”, to use the popular parlance).
This has profound implications for improving trust. Whereas a centralised record can be tampered with (entries removed or edited), information stored on the blockchain is reliable and permanent.
The Blockchain ‘Ledger’
The blockchain is a layer of technology that sits upon the internet, just as the World Wide Web does.
You can think of a blockchain as being an advanced and distributed database. Imagine a communal spreadsheet, or ledger, which is held by thousands of users, and which can be viewed and edited by them all.
Any user can make a change to this ‘spreadsheet’, but all other users must agree to the change before all copies are updated. Changes can be made by individuals, then, but only incorporated onto the blockchain by consensus. This is how the Bitcoin blockchain operates.
The Ethereum blockchain technology takes this a step further, by offering programs to create executable ‘smart contracts’, analogous to macros in spreadsheets. These macros are also possessed by everyone on the network, so ensuring trust.
These smart contracts are building out new opportunities on the blockchain. Whilst Bitcoin can be thought of as a blockchain-based version of money, Ethereum can be thought of as a programmable, blockchain-based version of not just money, but also apps and software programmes.
Keys, Digital Signatures and Hashing
There are three concepts upon which cryptographic science depends; keys, digital signatures, and hashing.
Keys are typically used in pairs, one being public (used by the sender to encrypt) and one private (used by the recipient to decrypt, and known only to them).
Digital signatures are mathematical computations used to confirm the authenticity of the digital document or message being received.
Hashing uses a kind of digital fingerprint (a hash function) to verify the integrity of the information being sent, by confirming that it has not been changed in any way. A cryptographic hash works in one direction only; the input data cannot be recreated from the output data.