Blockchain is a new class of information technology which combines cryptography with distributed computing.
Those technologies have been around for decades.
in 2008 Satoshi Nakamoto combined them in a new ways to establish a model for a network of computers to collaborate towards maintaining a shared and secure database.
In simple terms, blockchain as a technology, is simply a distributed secure database.
This database consists of a string of blocks, each one a record of data that has been encrypted and given a unique identifier, called a hash.
Mining computers on the network validate transactions, add them to the block they’re building and then broadcast the completed block to other nodes so that all in the network have a copy of the database.
Because there is no central authority to verify the ongoing updated data, the blockchain relies upon a distributed consensus algorithm. In order to make an entry on to the blockchain database all the computers have to agree about its state so that no one computer can make an alteration without the consensus of others.
Once completed, a block of data gets put into the blockchain as a permanent record. Each time a block gets completed, a new one is generated. Hence, there is a countless string of blocks in a blockchain all connected to one another, like links in a chain, in proper, linear, chronological order.
The blockchain was designed so that transactions are immutable, meaning they are unchangeable and cannot be deleted.
Each block contains a hash value that is dependent upon the hash of the previous block. So they’re all linked together. If one is changed, then all the other blocks in the chain going forward will be altered, making any such change fully observable. This makes the data tamper-proof.
The previous info outlines what could be described as blockchain 1.0, which function largely as simply databases. But the technology continues to evolve.
The second generation already provides the capacity to execute any computer code on the blockchain. The system is evolving to become a globally distributed cloud-computing infrastructure.
It remains very much a work-in-progress.
As a permanent and secure database, blockchain serves as a suitable storage place for records or transactions that involve value or in some way needs to be a secure and trusted source of information.
These secure, distributed records, are called distributed ledgers.
A distributed ledger is a consensus of replicated, shared and synchronized digital data geographically dispersed across multiple sites.
Such ledgers can be used for any type of data storage, such as inventory or monetary transactions.
Distributed ledger technology enables the replacement of a multiplicity of private databases within each organization, with one shared database that is accessible and trusted by all parties involved.
Blockchain enables trust between parties that might not otherwise trust each other.
The result greatly strengthens collaboration between organizations or between individuals, peer-to-peer, without dependency on third party centralized institutions.
This greatly increases efficiencies between collaborating companies in a variety of industries.
Second generation blockchains offer the opportunity to automate the workings of these networks through smart contracts.
Smart contracts are computer code stored inside a blockchain, which encode contractual agreements.
These smart contracts are self-executing contracts with the terms of the agreement or operation written into lines of code, which are stored and executed on the blockchain.
For example, a potential financial smart contract might automatically increase an amount of interest for some stored money, once it exceeds a certain value. Additionally, smart contracts can be used to automate many basic operations on the network, disintermediating the need for third-party institutions.
Blockchain is a new organization paradigm for the discovery, validation and transfer of all discrete units of value and the development of distributed organizations via token market systems.
A token is a quantified unit of value that is recorded on the blockchain. This value may be of any kind. It might be “likes” on social media, it might be a currency, it might be the integrity of an ecosystem, or it might be an electrical unit.
Token networks are a network of independent nodes that act autonomously but through incentive structures and the signalling system of the market, self-organize to create emergent coordination and thus a distributed management system.
Blockchain is not just an information technology, it’s an institutional technology that enables us to design incentive structures in the form of token economies. In such a way this can convert centralized organizations into distributed markets via token economics.
This has the potential to organize human activity on a larger scale than has been previously possible.
the great design innovation of blockchain is its capacity to coordinate a network of autonomous nodes towards maintaining a shared infrastructure.
Though adding a layer of trust and value exchange to the internet, blockchain merges our newly developed information networks with the institutional structures that sit on top of them. This strengthens the networks as a new mode for organizing society and economy.
By merging technology and economics it enables us to redesign institutional structures and ultimately re-conceptualize how we organize every aspect of society, economy and even technology, based on networks or autonomous nodes that are incentivized to collaborate.
Much of what blockchain has to offer will only be possible with the parallel development of the Internet of Things and advanced analytics, all of which are combining to form the next generation of internet, of which the blockchain will be a critical infrastructure.