In a nutshell, a blockchain is a database that technologically consists of a chain of digital blocks with each block constituting one of the multiple sequentially ordered chain links that make up a digital chain — a so-called “blockchain.” Each of these blocks (or links) contains an immutable record of one or more transactions (in some cases, thousands of transactions). Although a gross oversimplification of how blockchain technology works, blockchains involve a continually repeating process whereby the content and order of new transactions are recorded into a new block, which is added as the newest link to the chain. As a phrase, “blockchain” is generally synonymous with Distributed Ledger Technology (DLT). However, whereas most blockchains are DLTs, not all DLTs are based on blockchain technology.
Similar to how there are multiple types of database technologies (SQL, NoSQL, object-oriented, etc.), there are multiple types of DLTs. Blockchain is one such technology and, similar to SQL having the biggest footprint of any database technology, blockchain has the biggest footprint of any DLT. This definition of “blockchain” will explain what a blockchain is, but will not go into detail about how it works.
Before understanding what a blockchain is, it’s important to know about the basic premise of a distributed ledger. So, before you continue, be sure to review Blockchain Journal’s definition of DLT.
Bitcoin, which was the first distributed ledger (and is the most famous of the many distributed ledgers), is based on blockchain technology. As implied earlier, not all distributed ledgers — and there are many — are based on blockchain. But, many of the distributed ledgers that came along after the introduction of Bitcoin in 2009 are fundamentally based on the same blockchain technology that Bitcoin itself is based on.
As the name implies, a blockchain — be it Bitcoin or one of the many other blockchains — is a chain of blocks. And like any chain (e.g., a chain for locking up your bicycle), the chain of blocks that make up a blockchain are a contiguous set of links that connect to the links before and after it.
The first link in any blockchain is called the genesis block and has no preceding link and, at any given point in time, there will always be a last link in the chain after which no other link exists (until a new one is added). As time progresses, new blocks are continuously added to the chain in order to facilitate the recording and ordering of new transactions. To the extent that the most important outcome of any digital ledger is a shared agreement (technically known as the “consensus”) regarding the order of the transactions it keeps a record of, each block on a blockchain is itself a digital package of transactions that’s sequentially ordered after the most previous block. For example, if block #5 on some blockchain-based distributed ledger contains 20 transactions and block #6 contains 15 transactions, all of the 15 transactions in block #6 would come after the 20 transactions in block #5 in the ledger’s overall order of transactions.
But, in addition to the influence that a block’s sequential position in a chain has on the overall order of that chain’s transactions, the order of the transactions within a block will also influence the order of all of that chain’s transactions.
The operational details of blockchains cryptography and fair ordering are beyond the scope of this glossary definition. In the meantime, it’s important to know that the algorithm that plays a central a role in block and transaction ordering on a given chain — aka the chain’s “consensus algorithm” — often differs from one distributed ledger to the next. These algorithmic differences can be very nuanced. But at the same time, in the spirit of attracting users that might appreciate those subtleties, they also help to competitively differentiate distributed ledgers from one another. This is why it’s important for enterprises that are exploring DLT as an application platform for an upcoming use case (or to replatform an existing use case) to study the consensus algorithms of the different chains under consideration to make sure the final choice matches the business requirements of that use case.
One final important note about blockchain technology. Just because Bitcoin is a distributed, permission-less (no permission is necessary to add a node to the Bitcoin network) and decentralized ledger (depending on your definition of decentralized; a rabbithole we will not descend into here) does not mean that all ledgers based on blockchain technology are distributed, permission-less or decentralized.
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