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What is blockchain technology?

May 20, 2022

Part 1 of 5: The blockchain fundamentals by rewired.one

TL;DR.

A blockchain is a digital, decentralised and public ledger that handles the process of recording and tracking assets within a network of computer systems. It can store data of any kind, relating to physical or digital assets.

Blockchain structures its data into ‘blocks’ that are ‘chained’ together.

Think of it like an operating system. In the same way that Microsoft’s Windows or Apple’s OS run many apps and programs, so too does blockchain. Bitcoin was its first use case.

Let’s break down blockchain in more detail.

Distributed ledger

Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.

Block

A block contains information, including the data, hash of the block and hash of the previous block.

  • The data can vary, depending on the type of blockchain.
  • A hash is like a unique fingerprint, used to identify the block and its information.
  • The hash of the previous block is what creates the ‘chain’.

Changing the data changes the hash, which breaks the chain. This is why blockchain is so secure.

Smart contracts

Smart contracts provide the rules and execute the transactions on the blockchain, automatically and securely. No participant can change or tamper with a transaction once it has been recorded to the ledger.

How the blockchain process works

  1. Alice wants to send money to Bob
  2. This transaction creates a block
  3. The block is sent out to everyone (nodes) in the network
  4. The network approves the transaction
  5. The money moves from Alice to Bob
  6. The block is added to the blockchain, making it permanent
  7. The transaction is complete

The history of blockchain

While the adoption of blockchain has accelerated in recent times, the technology has been in development for decades.

1991 – ‘Digital timestamps’ are proposed by Stuart Haber and W. Scott Stornetta, which involved cryptographically chains of blocks that could not be tampered with.

2009 – Satoshi Nakamoto famously releases a whitepaper outlining Bitcoin, underpinned by blockchain technology.

2009 – The first Bitcoin transaction occurs, between Satoshi and Hal Finny.

2013 – Bitcoin market cap passes $1 billion.

2013 – Vitalik Buterin releases Ethereum whitepaper.

2015 – Smart contracts launch.

2015 – Linux Foundation launches Hyperledger, an open-source project facilitating the development of decentralised projects.

2016 – Major banks including Bank Of England and the European Central Bank start exploring blockchain technology.

2017 – US regulators approve Bitcoin as a mainstream investment.

2019 – Blockchain gains mainstream adoption passing more than 450 million transactions, as tech giants including Facebook and Amazon invest in blockchain.

2021 – A new world of the web underpinned by blockchain emerges through ‘Web3’, with Non Fungible Tokens (NFTs) for ownership of digital assets and the Metaverse opening up new, virtual worlds.

2021 – Venture capital firms invest over $30 billion into blockchain and cryptocurrency startups.

2022 – Numerous major brands including Nike, Walmart and Gucci invest in the Metaverse.

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