A blockchain is a ledger of records arranged in data batches called blocks that use cryptographic validation to link themselves together.
Put simply, each block references and identifies the previous block by a hashing function, forming an unbroken chain, hence the name.
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Put like this, a blockchain just sounds like a kind of database with built-in validation—which it is. However, the clever bit is that the ledger is not stored in a master location or managed by any particular body. Instead, it is said to be distributed, existing on multiple computers at the same time in such a way that anybody with an interest can maintain a copy of it.
Better still, the block validation system ensures that nobody can tamper with the records. Rather, old transactions are preserved forever and new transactions are added to the ledger irreversibly. Anyone on the network can check the ledger and see the same transaction history as everyone else.
Distributed ledgers are ledgers in which data is stored across a network of decentralized nodes. A distributed ledger does not have to have its own currency and may be permissioned and private.
Ethereum is a blockchain-based decentralised platform for apps that run smart contracts, and is aimed at solving issues associated with censorship, fraud and third party interference.
Mining is the act of validating blockchain transactions. The necessity of validation warrants an incentive for the miners, usually in the form of coins. In this cryptocurrency boom, mining can be a lucrative business when done properly. By choosing the most efficient and suitable hardware and mining target, mining can produce a stable form of passive income.
Effectively a blockchain is a kind of independent, transparent, and permanent database coexisting in multiple locations and shared by a community. This is why it’s sometimes referred to as a mutual distributed ledger (MDL).
There’s nothing new about MDLs, their origins traceable to the seminal 1976 Diffie–Hellman research paper New Directions In Cryptography. But for a long time they were regarded as complicated and not altogether safe.
It took the simpler blockchain implementation within Bitcoin to turn things around. The permanence, security, and distributed nature of Bitcoin ensured it was a currency maintained by a growing community but controlled by absolutely nobody and unable to be manipulated.
Following the launch of Bitcoin, dozens of vigorous tech startups have vied with each other to produce the Next Big Thing in blockchain-based cryptocurrency, from the relatively-well-regarded Ethereum to the frankly ludicrous Coinye West.
Blockchains: For when everyone distrusts each other
But if the registry was not owned by a central third party but sitting on multiple machines and everybody had copies, it would have resilience and looking up transactions would be quick. And with the data being immutable once entered in the ledger, it would provide a permanent record that financial regulators and auditors could quickly fall in love with.
In principle, MDLs have a much wider potential beyond financial services. Solving the issue of trust and ensuring non-malleable permanence of the data could make it invaluable for managing the provenance of assets, date-stamping events, geo-stamping those events in a specific location, establishing identity, and so on.
In other words, it’s a souped-up audit trail for anything you like, not just a cryptocurrency. It’s not just one system. Indeed, the situation can be compared of the database revolution of the 1970s: there wasn’t just one type or structure for a database, you created the specific database you wanted for your own purposes.
This post originated on Ars Technica UK
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