Blockchain

Michael Best Strategies
Tax
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Distributed Ledger Technology
By Patrick Firth, Anne Canfield -March 19, 20181691
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What it is and why it’s going to change the world
The hype over terms like blockchain, distributed ledger technology, Bitcoin, and ICO may leave many
wondering what this is all about. We hope to answer some of your questions and pique your interest in
the most exciting technological innovation since the invention of the Internet. If interested, we
encourage you to review our Michael Best and Michael Best Strategies’ blog, Blockchain + The Law for a
more in-depth understanding of the issues and the firm’s capabilities in this exciting field. We also
publish daily the Michael Best Strategies’ Blockchain Cryptocurrency Daily Clips. Click here, if you would
like to subscribe.
The history
Distributed ledger technology, or, more famously, blockchain, is an algorithm, or a line of code, without
a central administrator. In 2008, an individual, working under the alias Satoshi Nakamoto, proposed and
conceptualized the first blockchain. Within a year, blockchain became the core platform for the popular
cryptocurrency, Bitcoin. The timing of this innovation is very important. While distributed ledger
technology had been proposed, theorized, and discussed since the early 1990s, it only really took off at
the height of mistrust in government oversight of the financial sector – the 2008 financial crisis. Before
blockchain, there were many issues and concerns with these new and unknown cryptocurrencies. One
of the biggest issues was ‘double spending,’ which is the act of using the same digital token on different
expenses. In a very simplistic explanation, imagine sending an email with one attachment to two or
more people. Technically, you have technically sent the same ‘item’ to different individuals. Now
imagine that the attachment was money and you can understand the problem. What blockchain did was
it enabled Bitcoin to become the first digital currency to solve the issue of “double counting” without
the need for a trusted, third-party’s oversight. This innovation is what helped Bitcoin and other
cryptocurrencies explode in popularity, as the lack of trust in governments’ abilities to oversee financial
transactions and institutions grew as the world was wrecked by global financial mismanagement.
blockchain_infographic
What makes blockchain so important
While cryptocurrencies have grabbed the headlines, it is the foundation underlying cryptocurrencies –
blockchain — that will completely reengineer how business is done in nearly every industry sector.
Blockchain is a decentralized database, or ledger, that records assets, transactions, or actions on a peer-
to-peer network. It is essentially a public registry of who owns what and what is transacted. The beauty
of the blockchain works without a central regulatory figure because its’ peer-to-peer network and
requires over half of the computers in the network within which a transaction is taking place to approve
that transaction – a truly community-run system that was built out of the mistrust in the regulatory
oversight bodies. While the benefit to transactions involving digital currencies is demonstrated by
proving the authenticity of the money is obvious, it is not much of an intellectual leap to see where
other industries could utilize this technology: a ledger that records transactions on a peer-to-peer,
decentralized network.
Blockchain will revolutionize how business is done
Smart Contracts
Just about every business endeavor involves a contractual agreement. Multi-million dollar business
deals simply do not transpire without lawyers hammering out the details and arbitrating the financial
aspects of the deal. With blockchain technology, we could see the advent of a new way of conducting
contractual business. Following the trend and popularity of decentralized activities, utilizing smart
contracts and avoiding costly “middlemen,” expenses can be cut and efficiencies enhanced. A contract
between two parties could be written as code into the blockchain and then a triggering event, such as an
expiration date or a strike price being hit, will make the contract execute itself according to the terms of
the contract that were in the code. An additional bonus to smart contracts is that regulators can use the
blockchain to monitor and understand the market activity, and perform their regulatory oversight and
enforcement responsibilities much more efficiently.
Crowdfunding
Blockchain increases the potential, and ability, for crowd-sourced venture capital funds. It took
Facebook seven years to raise $1 billion from their investors; Uber took five. The popular messaging app
Telegram, however, recently launched their initial coin offering (ICO) and, within just four months,
managed to crowd fund $1 billion for their business. Wild successes like Telegram’s will only further the
popularity of crypto fundraising methods.
Governance
By making election results fully open and transparent and, more importantly, publically accessible
(though still anonymous), blockchain could ensure full trust and authenticity in our electoral process. A
smart contract, for example, could be coded so that when candidate X wins a majority of votes from the
state of Y, they receive Z number of electoral votes, and once a candidate receives 270 electoral votes,
the contract automatically executes and declares them the president-elect.
Supply Chain Management
Just about every imaginable industry or business sector uses a supply chain. Whether it is an
agribusiness monitoring an ear of corn’s journey from farm to store or a diamond company tracking
where their diamonds come from, supply chain management is a crucial part of almost every industry.
Blockchain provides an easy way to certify that the ‘story’ the consumer is sold about a product,
whether it’s actually French wine, oil not originating from a sanctioned country, truly free trade sugar, or
an “ethically-mined” diamond, is true. The transparency originates out of the timestamping of a date
and location for each ‘block’ that is added to the ‘chain.’ In addition to authenticity assurances, supply
chain efficiency improvements brought upon by blockchain can expedite processing shipments and cut
costs.
Cybersecurity
In 2016, Guardtime, the world’s largest blockchain company by revenue, headcount, and customer
deployments, successfully secured all one million of the nation of Estonia’s health records on the
blockchain. Governments and industry are turning to blockchain to improve cybersecurity infrastructure.
This is because of the decentralized aspect of blockchain that ensures there is no single point of failure.
Creating peer-to-peer consensus mechanisms with blockchain will reduce fraud and mitigate data
tampering. Even more importantly, however, utilizing the blockchain removes the Achilles heel of
cybersecurity reliability: human error. Security experts have long argued that humans are the real
weakness of an otherwise strong, centralized security infrastructure. They were most recently proven
right by the Equifax data compromise. Remove that risk factor from the equation, and you could solve
the growing cyber security threats spreading across the globe.
File Storage
Storing files on a decentralized ledger mitigates the chances of losing data from hackers or disruptions
to an individual’s access to the network. As the information is distributed throughout the network, the
benefits, ranging from convenience to security, are clear.
… and many, many more. The innovations have only just begun.
While, the Internet changed the world by drastically improving productivity in almost every sector of the
economy, consider blockchain to be the Internet 2.0. The future of blockchain does not belong solely on
the platforms of cryptocurrencies, such as Bitcoin and Ethereum. While blockchain’s future is just
beginning to unfold, the endless potential applications of this technology will change the world
dramatically in the next five years. The next phase of the Age of Information is upon us, presenting
businesses with the unique opportunity to be pioneers of this new technology. I encourage you to visit
Michael Best and Michael Best Strategies’ new Blockchain, Digital Currencies & Smart Contracts practice,
and our blog, Blockchain + The Law, to learn more.
On a final note, if this blog piece was not persuasive enough for you, consider what blockchain founder
Satoshi Nakamoto once said regarding Bitcoin: “It might make sense just to get some in case it catches
on.”
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Patrick Firth
Bio Link Patrick has been very active in politics since his time with the Talbot County Democratic Forum,
where he volunteered for President Obama’s re-election as a high school student. While in college, he
volunteered for Monty Mason for Delegate of District 93 in Williamsburg, VA; served as a campaign
strategist for Virginia’s 1st District congressional candidate, Norm Mosher; and interned on the Hill for
Senate Majority Leader Harry Reid in 2014. Expertise: Tax, Financial Services, Environment, Agriculture,
Blockchain, Cryptocurrency, and Energy
Anne Canfield
Bio Link Anne’s work involves providing strategic planning, policy advice, and representational services
to major corporations on federal and state legislative and regulatory issues in the financial services
industry, tax and trade, healthcare, infrastructure, and budget policy areas. Expertise: Tax & Finance,
Healthcare, Mortgage, and Bond Insurance
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Blockchain Explained
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PART OF
Guide to Blockchain
By LUKE CONWAY Reviewed by JULIUS MANSA Updated Jun 1, 2021
TABLE OF CONTENTS
EXPAND
What is Blockchain?
Storage Structure
Decentralization
Transparency
Is Blockchain Secure?
Bitcoin vs. Blockchain
Blockchain vs. Banks
How is Blockchain Used?
Advantages and Disadvantages of Blockchain

Advantages of Blockchain
Disadvantages of Blockchain
What's Next for Blockchain?
If you have been following banking, investing, or cryptocurrency over the last ten years, you may have
heard the term “blockchain,” the record-keeping technology behind the Bitcoin network.
KEY TAKEAWAYS
Blockchain is a specific type of database.
It differs from a typical database in the way it stores information; blockchains store data in blocks that
are then chained together.
As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto
the previous block, which makes the data chained together in chronological order.
Different types of information can be stored on a blockchain but the most common use so far has been
as a ledger for transactions.
In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group has control
—rather, all users collectively retain control.
Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin,
this means that transactions are permanently recorded and viewable to anyone.
What is Blockchain?
Blockchain seems complicated, and it definitely can be, but its core concept is really quite simple. A
blockchain is a type of database. To be able to understand blockchain, it helps to first understand what a
database actually is.
A database is a collection of information that is stored electronically on a computer system. Information,

or data, in databases is typically structured in table format to allow for easier searching and filtering for
specific information. What is the difference between someone using a spreadsheet to store information
rather than a database?
Spreadsheets are designed for one person, or a small group of people, to store and access limited
amounts of information. In contrast, a database is designed to house significantly larger amounts of
information that can be accessed, filtered, and manipulated quickly and easily by any number of users at
once.
Large databases achieve this by housing data on servers that are made of powerful computers. These
servers can sometimes be built using hundreds or thousands of computers in order to have the
computational power and storage capacity necessary for many users to access the database
simultaneously. While a spreadsheet or database may be accessible to any number of people, it is often
owned by a business and managed by an appointed individual that has complete control over how it
works and the data within it.
So how does a blockchain differ from a database?
Storage Structure
One key difference between a typical database and a blockchain is the way the data is structured. A
blockchain collects information together in groups, also known as blocks, that hold sets of information.
Blocks have certain storage capacities and, when filled, are chained onto the previously filled block,
forming a chain of data known as the “blockchain.” All new information that follows that freshly added
block is compiled into a newly formed block that will then also be added to the chain once filled.
A database structures its data into tables whereas a blockchain, like its name implies, structures its data
into chunks (blocks) that are chained together. This makes it so that all blockchains are databases but
not all databases are blockchains. This system also inherently makes an irreversible timeline of data
when implemented in a decentralized nature. When a block is filled it is set in stone and becomes a part
of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.
Transaction Process
Blockchain
Attributes of Cryptocurrency
Blockchain
Decentralization
For the purpose of understanding blockchain, it is instructive to view it in the context of how it has been
implemented by Bitcoin. Like a database, Bitcoin needs a collection of computers to store its blockchain.
For Bitcoin, this blockchain is just a specific type of database that stores every Bitcoin transaction ever
made. In Bitcoin’s case, and unlike most databases, these computers are not all under one roof, and
each computer or group of computers is operated by a unique individual or group of individuals.
Imagine that a company owns a server comprised of 10,000 computers with a database holding all of its
client's account information. This company has a warehouse containing all of these computers under
one roof and has full control of each of these computers and all the information contained within them.
Similarly, Bitcoin consists of thousands of computers, but each computer or group of computers that
hold its blockchain is in a different geographic location and they are all operated by separate individuals
or groups of people. These computers that makeup Bitcoin’s network are called nodes.
In this model, Bitcoin’s blockchain is used in a decentralized way. However, private, centralized
blockchains, where the computers that make up its network are owned and operated by a single entity,
do exist.
In a blockchain, each node has a full record of the data that has been stored on the blockchain since its
inception. For Bitcoin, the data is the entire history of all Bitcoin transactions. If one node has an error in
its data it can use the thousands of other nodes as a reference point to correct itself. This way, no one
node within the network can alter information held within it. Because of this, the history of transactions
in each block that make up Bitcoin’s blockchain is irreversible.
If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each
other and easily pinpoint the node with the incorrect information. This system helps to establish an
exact and transparent order of events. For Bitcoin, this information is a list of transactions, but it also is
possible for a blockchain to hold a variety of information like legal contracts, state identifications, or a
company’s product inventory.
In order to change how that system works, or the information stored within it, a majority of the
decentralized network’s computing power would need to agree on said changes. This ensures that
whatever changes do occur are in the best interests of the majority.
Transparency
Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed
by either having a personal node or by using blockchain explorers that allow anyone to see transactions
occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed
and added. This means that if you wanted to, you could track Bitcoin wherever it goes.
For example, exchanges have been hacked in the past where those who held Bitcoin on the exchange
lost everything. While the hacker may be entirely anonymous, the Bitcoins that they extracted are easily
traceable. If the Bitcoins that were stolen in some of these hacks were to be moved or spent
somewhere, it would be known.
Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are
always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain.
If you take a look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a
“height.” As of November 2020, the block’s height had reached 656,197 blocks so far.
After a block has been added to the end of the blockchain, it is very difficult to go back and alter the
contents of the block unless the majority reached a consensus to do so. That’s because each block
contains its own hash, along with the hash of the block before it, as well as the previously mentioned
time stamp. Hash codes are created by a math function that turns digital information into a string of
numbers and letters. If that information is edited in any way, the hash code changes as well.
Here’s why that’s important to security. Let’s say a hacker wants to alter the blockchain and steal Bitcoin
from everyone else. If they were to alter their own single copy, it would no longer align with everyone
else's copy. When everyone else cross-references their copies against each other, they would see this
one copy stand out and that hacker's version of the chain would be cast away as illegitimate.
Succeeding with such a hack would require that the hacker simultaneously control and alter 51% of the
copies of the blockchain so that their new copy becomes the majority copy and thus, the agreed-upon
chain. Such an attack would also require an immense amount of money and resources as they would
need to redo all of the blocks because they would now have different timestamps and hash codes.
Due to the size of Bitcoin’s network and how fast it is growing, the cost to pull off such a feat would
probably be insurmountable. Not only would this be extremely expensive, but it would also likely be
fruitless. Doing such a thing would not go unnoticed, as network members would see such drastic
alterations to the blockchain. The network members would then fork off to a new version of the chain
that has not been affected.
This would cause the attacked version of Bitcoin to plummet in value, making the attack ultimately
pointless as the bad actor has control of a worthless asset. The same would occur if the bad actor were
to attack the new fork of Bitcoin. It is built this way so that taking part in the network is far more
economically incentivized than attacking it.
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited.
Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two
researchers who wanted to implement a system where document timestamps could not be tampered
with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that
blockchain had its first real-world application.
The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency,
Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system
that’s fully peer-to-peer, with no trusted third party.”
The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently
record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of
data points. As discussed above, this could be in the form of transactions, votes in an election, product
inventories, state identifications, deeds to homes, and much more.
Currently, there is a vast variety of blockchain-based projects looking to implement blockchain in ways
to help society other than just recording transactions. One good example is that of blockchain being
used as a way to vote in democratic elections. The nature of blockchain’s immutability means that
fraudulent voting would become far more difficult to occur.
For example, a voting system could work such that each citizen of a country would be issued a single
cryptocurrency or token. Each candidate would then be given a specific wallet address, and the voters
would send their token or crypto to whichever candidate's address they wish to vote for. The
transparent and traceable nature of blockchain would eliminate the need for human vote counting as
well as the ability of bad actors to tamper with physical ballots.
Banks and decentralized blockchains are vastly different. To see how a bank differs from blockchain, let’s
compare the banking system to Bitcoin’s implementation of blockchain.
As we now know, blocks on Bitcoin’s blockchain store data about monetary transactions. But it turns out
that blockchain is actually a reliable way of storing data about other types of transactions, as well.
Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG, Siemens,
Unilever, and a host of others. For example, IBM has created its Food Trust blockchain1 to trace the
journey that food products take to get to its locations.
Why do this? The food industry has seen countless outbreaks of e Coli, salmonella, listeria, as well as
hazardous materials being accidentally introduced to foods. In the past, it has taken weeks to find the
source of these outbreaks or the cause of sickness from what people are eating.
Using blockchain gives brands the ability to track a food product’s route from its origin, through each
stop it makes, and finally its delivery. If a food is found to be contaminated then it can be traced all the
way back through each stop to its origin. Not only that, but these companies can also now see
everything else it may have come in contact with, allowing the identification of the problem to occur far
sooner, potentially saving lives. This is one example of blockchains in practice, but there are many other
forms of blockchain implementation.
Banking and Finance

Perhaps no industry stands to benefit from integrating blockchain into its business operations more than
banking. Financial institutions only operate during business hours, five days a week. That means if you
try to deposit a check on Friday at 6 p.m., you will likely have to wait until Monday morning to see that
money hit your account. Even if you do make your deposit during business hours, the transaction can
still take one to three days to verify due to the sheer volume of transactions that banks need to settle.
Blockchain, on the other hand, never sleeps.
By integrating blockchain into banks, consumers can see their transactions processed in as little as 10
minutes,2 basically the time it takes to add a block to the blockchain, regardless of holidays or the time
of day or week. With blockchain, banks also have the opportunity to exchange funds between
institutions more quickly and securely. In the stock trading business, for example, the settlement and
clearing process can take up to three days (or longer, if trading internationally), meaning that the money
and shares are frozen for that period of time.
Given the size of the sums involved, even the few days that the money is in transit can carry significant
costs and risks for banks. European bank Santander and its research partners put the potential savings at
$15 billion to $20 billion a year.3 Capgemini, a French consultancy, estimates that consumers could save
up to $16 billion in banking and insurance fees each year4 through blockchain-based applications.
Currency
Blockchain forms the bedrock for cryptocurrencies like Bitcoin. The U.S. dollar is controlled by the
Federal Reserve. Under this central authority system, a user’s data and currency are technically at the
whim of their bank or government. If a user’s bank is hacked, the client’s private information is at risk. If
the client’s bank collapses or they live in a country with an unstable government, the value of their
currency may be at risk. In 2008, some of the banks that ran out of money were bailed out partially
using taxpayer money. These are the worries out of which Bitcoin was first conceived and developed.
By spreading its operations across a network of computers, blockchain allows Bitcoin and other
cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also
eliminates many of the processing and transaction fees. It can also give those in countries with unstable
currencies or financial infrastructures a more stable currency with more applications and a wider
network of individuals and institutions they can do business with, both domestically and internationally.
Using cryptocurrency wallets for savings accounts or as a means of payment is especially profound for
those who have no state identification. Some countries may be war-torn or have governments that lack
any real infrastructure to provide identification. Citizens of such countries may not have access to
savings or brokerage accounts and therefore, no way to safely store wealth.
Healthcare
Health care providers can leverage blockchain to securely store their patients’ medical records. When a
medical record is generated and signed, it can be written into the blockchain, which provides patients
with the proof and confidence that the record cannot be changed. These personal health records could
be encoded and stored on the blockchain with a private key, so that they are only accessible by certain
individuals, thereby ensuring privacy.
Records of Property
If you have ever spent time in your local Recorder’s Office, you will know that the process of recording
property rights is both burdensome and inefficient. Today, a physical deed must be delivered to a
government employee at the local recording office, where it is manually entered into the county’s
central database and public index. In the case of a property dispute, claims to the property must be
reconciled with the public index.
This process is not just costly and time-consuming—it is also riddled with human error, where each
inaccuracy makes tracking property ownership less efficient. Blockchain has the potential to eliminate
the need for scanning documents and tracking down physical files in a local recording office. If property
ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and
permanently recorded.
In war-torn countries or areas that have little to no government or financial infrastructure, and certainly
no “Recorder’s Office,” it can be nearly impossible to prove ownership of a property. If a group of people
living in such an area is able to leverage blockchain, transparent and clear timelines of property
ownership could be established.
Smart Contracts
A smart contract is a computer code that can be built into the blockchain to facilitate, verify, or
negotiate a contract agreement. Smart contracts operate under a set of conditions that users agree to.
When those conditions are met, the terms of the agreement are automatically carried out.
Say, for example, a potential tenant would like to lease an apartment using a smart contract. The
landlord agrees to give the tenant the door code to the apartment as soon as the tenant pays the
security deposit. Both the tenant and the landlord would send their respective portions of the deal to
the smart contract, which would hold onto and automatically exchange the door code for the security
deposit on the date the lease begins. If the landlord doesn’t supply the door code by the lease date, the
smart contract refunds the security deposit. This would eliminate the fees and processes typically
associated with the use of a notary, third-party mediator, or attornies.
Supply Chains
As in the IBM Food Trust example, suppliers can use blockchain to record the origins of materials that
they have purchased. This would allow companies to verify the authenticity of their products, along with
such common labels as “Organic,” “Local,” and “Fair Trade.”
As reported by Forbes, the food industry is increasingly adopting the use of blockchain to track the path
and safety of food throughout the farm-to-user journey.
Voting
As mentioned, blockchain could be used to facilitate a modern voting system. Voting with blockchain
carries the potential to eliminate election fraud and boost voter turnout, as was tested in the November
2018 midterm elections in West Virginia.Using blockchain in this way would make votes nearly
impossible to tamper with. The blockchain protocol would also maintain transparency in the electoral
process, reducing the personnel needed to conduct an election and providing officials with nearly
instant results. This would eliminate the need for recounts or any real concern that fraud might threaten
the election.
For all of its complexity, blockchain’s potential as a decentralized form of record-keeping is almost
without limit. From greater user privacy and heightened security to lower processing fees and fewer
errors, blockchain technology may very well see applications beyond those outlined above. But there
are also some disadvantages.
Pros
Improved accuracy by removing human involvement in verification
Cost reductions by eliminating third-party verification
Decentralization makes it harder to tamper with
Transactions are secure, private, and efficient
Transparent technology
Provides a banking alternative and way to secure personal information for citizens of countries with
unstable or underdeveloped governments
Cons
Significant technology cost associated with mining bitcoin
Low transactions per second
History of use in illicit activities
Regulation
Here are the selling points of blockchain for businesses on the market today in more detail.
Accuracy of the Chain
Transactions on the blockchain network are approved by a network of thousands of computers. This
removes almost all human involvement in the verification process, resulting in less human error and an
accurate record of information. Even if a computer on the network were to make a computational
mistake, the error would only be made to one copy of the blockchain. In order for that error to spread to
the rest of the blockchain, it would need to be made by at least 51% of the network’s computers—a
near impossibility for a large and growing network the size of Bitcoin’s.
Cost Reductions
Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to
perform a marriage. Blockchain eliminates the need for third-party verification and, with it, their
associated costs. Business owners incur a small fee whenever they accept payments using credit cards,
for example, because banks and payment processing companies have to process those transactions.
Bitcoin, on the other hand, does not have a central authority and has limited transaction fees.
Decentralization
Blockchain does not store any of its information in a central location. Instead, the blockchain is copied
and spread across a network of computers. Whenever a new block is added to the blockchain, every
computer on the network updates its blockchain to reflect the change. By spreading that information
across a network, rather than storing it in one central database, blockchain becomes more difficult to
tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the
information, rather than the entire network, would be compromised.
Efficient Transactions
Transactions placed through a central authority can take up to a few days to settle. If you attempt to
deposit a check on Friday evening, for example, you may not actually see funds in your account until
Monday morning. Whereas financial institutions operate during business hours, five days a week,
blockchain is working 24 hours a day, seven days a week, and 365 days a year. Transactions can be
completed in as little as ten minutes and can be considered secure after just a few hours. This is
particularly useful for cross-border trades, which usually take much longer because of time-zone issues
and the fact that all parties must confirm payment processing.
Private Transactions
Many blockchain networks operate as public databases, meaning that anyone with an internet
connection can view a list of the network’s transaction history. Although users can access details about
transactions, they cannot access identifying information about the users making those transactions. It is
a common misperception that blockchain networks like bitcoin are anonymous, when in fact they are
only confidential.
That is, when a user makes public transactions, their unique code called a public key, is recorded on the
blockchain, rather than their personal information. If a person has made a Bitcoin purchase on an
exchange that requires identification then the person’s identity is still linked to their blockchain address,
but a transaction, even when tied to a person’s name, does not reveal any personal information.
Secure Transactions
Once a transaction is recorded, its authenticity must be verified by the blockchain network. Thousands
of computers on the blockchain rush to confirm that the details of the purchase are correct. After a
computer has validated the transaction, it is added to the blockchain block. Each block on the blockchain
contains its own unique hash, along with the unique hash of the block before it. When the information
on a block is edited in any way, that block’s hashcode changes—however, the hash code on the block
after it would not. This discrepancy makes it extremely difficult for information on the blockchain to be
changed without notice.
Transparency
Most blockchains are entirely open-source software. This means that anyone and everyone can view its
code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security. This also means
that there is no real authority on who controls Bitcoin’s code or how it is edited. Because of this, anyone
can suggest changes or upgrades to the system. If a majority of the network users agree that the new
version of the code with the upgrade is sound and worthwhile then Bitcoin can be updated.
Banking the Unbanked

Perhaps the most profound facet of blockchain and Bitcoin is the ability for anyone, regardless of
ethnicity, gender, or cultural background, to use it. According to the world bank there are nearly 2 billion
adults that do not have bank accounts or any means of storing their money or wealth.5 Nearly all of
these individuals live in developing countries where the economy is in its infancy and entirely dependent
on cash.
These people often earn little money that is paid in physical cash. They then need to store this physical
cash in hidden locations in their homes or places of living leaving them subject to robbery or
unnecessary violence. Keys to a bitcoin wallet can be stored on a piece of paper, a cheap cell phone, or
even memorized if necessary. For most people, it is likely that these options are more easily hidden than
a small pile of cash under a mattress.
Blockchains of the future are also looking for solutions to not only be a unit of account for wealth
storage, but also to store medical records, property rights, and a variety of other legal contracts.
While there are significant upsides to the blockchain, there are also significant challenges to its
adoption. The roadblocks to the application of blockchain technology today are not just technical. The
real challenges are political and regulatory, for the most part, to say nothing of the thousands of hours
(read: money) of custom software design and back-end programming required to integrate blockchain
to current business networks. Here are some of the challenges standing in the way of widespread
blockchain adoption.
Technology Cost
Although blockchain can save users money on transaction fees, the technology is far from free. The
“proof of work” system that bitcoin uses to validate transactions, for example, consumes vast amounts
of computational power. In the real world, the power from the millions of computers on the bitcoin
network is close to what Denmark consumes annually. Assuming electricity costs of $0.03~$0.05 per
kilowatt-hour, mining costs exclusive of hardware expenses are about $5,000~$7,000 per coin.10
Despite the costs of mining bitcoin, users continue to drive up their electricity bills in order to validate
transactions on the blockchain. That’s because when miners add a block to the bitcoin blockchain, they
are rewarded with enough bitcoin to make their time and energy worthwhile. When it comes to
blockchains that do not use cryptocurrency, however, miners will need to be paid or otherwise
incentivized to validate transactions.
Some solutions to these issues are beginning to arise. For example, bitcoin mining farms have been set
up to use solar power, excess natural gas from fracking sites, or power from wind farms.
Speed Inefficiency
Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s “proof of work”
system takes about ten minutes to add a new block to the blockchain. At that rate, it’s estimated that
the blockchain network can only manage about seven transactions per second (TPS). Although other
cryptocurrencies such as Ethereum perform better than bitcoin, they are still limited by blockchain.
Legacy brand Visa, for context, can process 24,000 TPS.
Solutions to this issue have been in development for years. There are currently blockchains that are
boasting over 30,000 transactions per second.
Illegal Activity
While confidentiality on the blockchain network protects users from hacks and preserves privacy, it also
allows for illegal trading and activity on the blockchain network. The most cited example of blockchain
being used for illicit transactions is probably the Silk Road, an online “dark web” drug marketplace
operating from February 2011 until October 2013 when it was shut down by the FBI.6
The website allowed users to browse the website without being tracked using the Tor browser and
make illegal purchases in Bitcoin or other cryptocurrencies. Current U.S. regulations require financial
service providers to obtain information about their customers when they open an account, verify the
identity of each customer, and confirm that customers do not appear on any list of known or suspected
terrorist organizations. This system can be seen as both a pro and a con. It gives anyone access to
financial accounts but also allows criminals to more easily transact. Many have argued that the good
uses of crypto, like banking the unbanked world, outweigh the bad uses of cryptocurrency, especially
when most illegal activity is still accomplished through untraceable cash.
Regulation
Many in the crypto space have expressed concerns about government regulation over cryptocurrencies.
While it is getting increasingly difficult and near impossible to end something like Bitcoin as its
decentralized network grows, governments could theoretically make it illegal to own cryptocurrencies or
participate in their networks.
Over time this concern has grown smaller as large companies like PayPal begin to allow the ownership
and use of cryptocurrencies on its platform.
First proposed as a research project in 1991,7 blockchain is comfortably settling into its late twenties.
Like most millennials its age, blockchain has seen its fair share of public scrutiny over the last two
decades, with businesses around the world speculating about what the technology is capable of and
where it’s headed in the years to come.
With many practical applications for the technology already being implemented and explored,
blockchain is finally making a name for itself at age twenty-seven, in no small part because of bitcoin and
cryptocurrency. As a buzzword on the tongue of every investor in the nation, blockchain stands to make
business and government operations more accurate, efficient, secure, and cheap with fewer middlemen.
As we prepare to head into the third decade of blockchain, it’s no longer a question of "if" legacy
companies will catch on to the technology—it's a question of "when."
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Related Terms
What is digital copy in cryptocurrency?
A digital copy is a duplicate record of every Bitcoin transaction that has taken place over a peer-to-peer
network. more
Bitcoin Maximalism
Bitcoin maximalists favor bitcoin over other cryptocurrencies and are unapologetically in favor of a
bitcoin monopoly in the future. more
What Is Ethereum?
Ethereum is a blockchain-based software platform for creating and using smart contracts and distributed
apps; the cryptocurrency Ether was created for it. more
Block Height
Block Height indicates the overall length of a blockchain. more
Ether (ETH)
Ether is the cryptocurrency of the Ethereum network. All of the programs linked with the Ethereum
network require computing power; Ether is the token that is used to pay for this power. more
Application-Specific Integrated Circuit (ASIC) Miner Definition
An application-specific integrated circuit (ASIC) miner is a computerized device that was designed for the
sole purpose of mining bitcoins. more
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PART OF
Guide to Blockchain
By LUKE CONWAY Reviewed by JULIUS MANSA Updated Jun 1, 2021
TABLE OF CONTENTS
EXPAND
What is Blockchain?
Storage Structure
Decentralization
Transparency

If you have been following banking, investing, or cryptocurrency over the last ten years, you may have
heard the term “blockchain,” the record-keeping technology behind the Bitcoin network.
KEY TAKEAWAYS
Blockchain is a specific type of database.
It differs from a typical database in the way it stores information; blockchains store data in blocks that
are then chained together.
As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto
the previous block, which makes the data chained together in chronological order.
Different types of information can be stored on a blockchain but the most common use so far has been
as a ledger for transactions.
In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group has control
—rather, all users collectively retain control.
Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin,
this means that transactions are permanently recorded and viewable to anyone.
What is Blockchain?
Blockchain seems complicated, and it definitely can be, but its core concept is really quite simple. A
blockchain is a type of database. To be able to understand blockchain, it helps to first understand what a
database actually is.
A database is a collection of information that is stored electronically on a computer system. Information,

or data, in databases is typically structured in table format to allow for easier searching and filtering for
specific information. What is the difference between someone using a spreadsheet to store information
rather than a database?
Spreadsheets are designed for one person, or a small group of people, to store and access limited
amounts of information. In contrast, a database is designed to house significantly larger amounts of
information that can be accessed, filtered, and manipulated quickly and easily by any number of users at
once.
Large databases achieve this by housing data on servers that are made of powerful computers. These
servers can sometimes be built using hundreds or thousands of computers in order to have the
computational power and storage capacity necessary for many users to access the database
simultaneously. While a spreadsheet or database may be accessible to any number of people, it is often
owned by a business and managed by an appointed individual that has complete control over how it
works and the data within it.
So how does a blockchain differ from a database?
Storage Structure
One key difference between a typical database and a blockchain is the way the data is structured. A
blockchain collects information together in groups, also known as blocks, that hold sets of information.
Blocks have certain storage capacities and, when filled, are chained onto the previously filled block,
forming a chain of data known as the “blockchain.” All new information that follows that freshly added
block is compiled into a newly formed block that will then also be added to the chain once filled.
A database structures its data into tables whereas a blockchain, like its name implies, structures its data
into chunks (blocks) that are chained together. This makes it so that all blockchains are databases but
not all databases are blockchains. This system also inherently makes an irreversible timeline of data
when implemented in a decentralized nature. When a block is filled it is set in stone and becomes a part
of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.
Transaction Process
Blockchain
Attributes of Cryptocurrency
Blockchain
Decentralization
For the purpose of understanding blockchain, it is instructive to view it in the context of how it has been
implemented by Bitcoin. Like a database, Bitcoin needs a collection of computers to store its blockchain.
For Bitcoin, this blockchain is just a specific type of database that stores every Bitcoin transaction ever
made. In Bitcoin’s case, and unlike most databases, these computers are not all under one roof, and
each computer or group of computers is operated by a unique individual or group of individuals.
Imagine that a company owns a server comprised of 10,000 computers with a database holding all of its
client's account information. This company has a warehouse containing all of these computers under
one roof and has full control of each of these computers and all the information contained within them.
Similarly, Bitcoin consists of thousands of computers, but each computer or group of computers that
hold its blockchain is in a different geographic location and they are all operated by separate individuals
or groups of people. These computers that makeup Bitcoin’s network are called nodes.
In this model, Bitcoin’s blockchain is used in a decentralized way. However, private, centralized
blockchains, where the computers that make up its network are owned and operated by a single entity,
do exist.
In a blockchain, each node has a full record of the data that has been stored on the blockchain since its
inception. For Bitcoin, the data is the entire history of all Bitcoin transactions. If one node has an error in
its data it can use the thousands of other nodes as a reference point to correct itself. This way, no one
node within the network can alter information held within it. Because of this, the history of transactions
in each block that make up Bitcoin’s blockchain is irreversible.
If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each
other and easily pinpoint the node with the incorrect information. This system helps to establish an
exact and transparent order of events. For Bitcoin, this information is a list of transactions, but it also is
possible for a blockchain to hold a variety of information like legal contracts, state identifications, or a
company’s product inventory.
In order to change how that system works, or the information stored within it, a majority of the
decentralized network’s computing power would need to agree on said changes. This ensures that
whatever changes do occur are in the best interests of the majority.
Transparency
Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed
by either having a personal node or by using blockchain explorers that allow anyone to see transactions
occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed
and added. This means that if you wanted to, you could track Bitcoin wherever it goes.
For example, exchanges have been hacked in the past where those who held Bitcoin on the exchange
lost everything. While the hacker may be entirely anonymous, the Bitcoins that they extracted are easily
traceable. If the Bitcoins that were stolen in some of these hacks were to be moved or spent
somewhere, it would be known.
Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are
always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain.
If you take a look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a
“height.” As of November 2020, the block’s height had reached 656,197 blocks so far.
After a block has been added to the end of the blockchain, it is very difficult to go back and alter the
contents of the block unless the majority reached a consensus to do so. That’s because each block
contains its own hash, along with the hash of the block before it, as well as the previously mentioned
time stamp. Hash codes are created by a math function that turns digital information into a string of
numbers and letters. If that information is edited in any way, the hash code changes as well.
Here’s why that’s important to security. Let’s say a hacker wants to alter the blockchain and steal Bitcoin
from everyone else. If they were to alter their own single copy, it would no longer align with everyone
else's copy. When everyone else cross-references their copies against each other, they would see this
one copy stand out and that hacker's version of the chain would be cast away as illegitimate.
Succeeding with such a hack would require that the hacker simultaneously control and alter 51% of the
copies of the blockchain so that their new copy becomes the majority copy and thus, the agreed-upon
chain. Such an attack would also require an immense amount of money and resources as they would
need to redo all of the blocks because they would now have different timestamps and hash codes.
Due to the size of Bitcoin’s network and how fast it is growing, the cost to pull off such a feat would
probably be insurmountable. Not only would this be extremely expensive, but it would also likely be
fruitless. Doing such a thing would not go unnoticed, as network members would see such drastic
alterations to the blockchain. The network members would then fork off to a new version of the chain
that has not been affected.
This would cause the attacked version of Bitcoin to plummet in value, making the attack ultimately
pointless as the bad actor has control of a worthless asset. The same would occur if the bad actor were
to attack the new fork of Bitcoin. It is built this way so that taking part in the network is far more
economically incentivized than attacking it.
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited.
Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two
researchers who wanted to implement a system where document timestamps could not be tampered
with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that
blockchain had its first real-world application.
The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency,
Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system
that’s fully peer-to-peer, with no trusted third party.”
The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently
record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of
data points. As discussed above, this could be in the form of transactions, votes in an election, product
inventories, state identifications, deeds to homes, and much more.
Currently, there is a vast variety of blockchain-based projects looking to implement blockchain in ways
to help society other than just recording transactions. One good example is that of blockchain being
used as a way to vote in democratic elections. The nature of blockchain’s immutability means that
fraudulent voting would become far more difficult to occur.
For example, a voting system could work such that each citizen of a country would be issued a single
cryptocurrency or token. Each candidate would then be given a specific wallet address, and the voters
would send their token or crypto to whichever candidate's address they wish to vote for. The
transparent and traceable nature of blockchain would eliminate the need for human vote counting as
well as the ability of bad actors to tamper with physical ballots.
Banks and decentralized blockchains are vastly different. To see how a bank differs from blockchain, let’s
compare the banking system to Bitcoin’s implementation of blockchain.
As we now know, blocks on Bitcoin’s blockchain store data about monetary transactions. But it turns out
that blockchain is actually a reliable way of storing data about other types of transactions, as well.
Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG, Siemens,
Unilever, and a host of others. For example, IBM has created its Food Trust blockchain1 to trace the
journey that food products take to get to its locations.
Why do this? The food industry has seen countless outbreaks of e Coli, salmonella, listeria, as well as
hazardous materials being accidentally introduced to foods. In the past, it has taken weeks to find the
source of these outbreaks or the cause of sickness from what people are eating.
Using blockchain gives brands the ability to track a food product’s route from its origin, through each
stop it makes, and finally its delivery. If a food is found to be contaminated then it can be traced all the
way back through each stop to its origin. Not only that, but these companies can also now see
everything else it may have come in contact with, allowing the identification of the problem to occur far
sooner, potentially saving lives. This is one example of blockchains in practice, but there are many other
forms of blockchain implementation.
Banking and Finance
Perhaps no industry stands to benefit from integrating blockchain into its business operations more than
banking. Financial institutions only operate during business hours, five days a week. That means if you
try to deposit a check on Friday at 6 p.m., you will likely have to wait until Monday morning to see that
money hit your account. Even if you do make your deposit during business hours, the transaction can
still take one to three days to verify due to the sheer volume of transactions that banks need to settle.
Blockchain, on the other hand, never sleeps.
By integrating blockchain into banks, consumers can see their transactions processed in as little as 10
minutes,2 basically the time it takes to add a block to the blockchain, regardless of holidays or the time
of day or week. With blockchain, banks also have the opportunity to exchange funds between
institutions more quickly and securely. In the stock trading business, for example, the settlement and
clearing process can take up to three days (or longer, if trading internationally), meaning that the money
and shares are frozen for that period of time.
Given the size of the sums involved, even the few days that the money is in transit can carry significant
costs and risks for banks. European bank Santander and its research partners put the potential savings at
$15 billion to $20 billion a year.3 Capgemini, a French consultancy, estimates that consumers could save
up to $16 billion in banking and insurance fees each year4 through blockchain-based applications.
Currency
Blockchain forms the bedrock for cryptocurrencies like Bitcoin. The U.S. dollar is controlled by the
Federal Reserve. Under this central authority system, a user’s data and currency are technically at the
whim of their bank or government. If a user’s bank is hacked, the client’s private information is at risk. If
the client’s bank collapses or they live in a country with an unstable government, the value of their
currency may be at risk. In 2008, some of the banks that ran out of money were bailed out partially
using taxpayer money. These are the worries out of which Bitcoin was first conceived and developed.
By spreading its operations across a network of computers, blockchain allows Bitcoin and other
cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also
eliminates many of the processing and transaction fees. It can also give those in countries with unstable
currencies or financial infrastructures a more stable currency with more applications and a wider
network of individuals and institutions they can do business with, both domestically and internationally.
Using cryptocurrency wallets for savings accounts or as a means of payment is especially profound for
those who have no state identification. Some countries may be war-torn or have governments that lack
any real infrastructure to provide identification. Citizens of such countries may not have access to
savings or brokerage accounts and therefore, no way to safely store wealth.
Healthcare
Health care providers can leverage blockchain to securely store their patients’ medical records. When a
medical record is generated and signed, it can be written into the blockchain, which provides patients
with the proof and confidence that the record cannot be changed. These personal health records could
be encoded and stored on the blockchain with a private key, so that they are only accessible by certain
individuals, thereby ensuring privacy.
Records of Property
If you have ever spent time in your local Recorder’s Office, you will know that the process of recording
property rights is both burdensome and inefficient. Today, a physical deed must be delivered to a
government employee at the local recording office, where it is manually entered into the county’s
central database and public index. In the case of a property dispute, claims to the property must be
reconciled with the public index.
This process is not just costly and time-consuming—it is also riddled with human error, where each
inaccuracy makes tracking property ownership less efficient. Blockchain has the potential to eliminate
the need for scanning documents and tracking down physical files in a local recording office. If property
ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and
permanently recorded.
In war-torn countries or areas that have little to no government or financial infrastructure, and certainly
no “Recorder’s Office,” it can be nearly impossible to prove ownership of a property. If a group of people
living in such an area is able to leverage blockchain, transparent and clear timelines of property
ownership could be established.
Smart Contracts
A smart contract is a computer code that can be built into the blockchain to facilitate, verify, or
negotiate a contract agreement. Smart contracts operate under a set of conditions that users agree to.
When those conditions are met, the terms of the agreement are automatically carried out.
Say, for example, a potential tenant would like to lease an apartment using a smart contract. The
landlord agrees to give the tenant the door code to the apartment as soon as the tenant pays the
security deposit. Both the tenant and the landlord would send their respective portions of the deal to
the smart contract, which would hold onto and automatically exchange the door code for the security
deposit on the date the lease begins. If the landlord doesn’t supply the door code by the lease date, the
smart contract refunds the security deposit. This would eliminate the fees and processes typically
associated with the use of a notary, third-party mediator, or attornies.
Supply Chains
As in the IBM Food Trust example, suppliers can use blockchain to record the origins of materials that
they have purchased. This would allow companies to verify the authenticity of their products, along with
such common labels as “Organic,” “Local,” and “Fair Trade.”
As reported by Forbes, the food industry is increasingly adopting the use of blockchain to track the path
and safety of food throughout the farm-to-user journey.
Voting
As mentioned, blockchain could be used to facilitate a modern voting system. Voting with blockchain
carries the potential to eliminate election fraud and boost voter turnout, as was tested in the November
2018 midterm elections in West Virginia.Using blockchain in this way would make votes nearly
impossible to tamper with. The blockchain protocol would also maintain transparency in the electoral
process, reducing the personnel needed to conduct an election and providing officials with nearly
instant results. This would eliminate the need for recounts or any real concern that fraud might threaten
the election.
For all of its complexity, blockchain’s potential as a decentralized form of record-keeping is almost
without limit. From greater user privacy and heightened security to lower processing fees and fewer
errors, blockchain technology may very well see applications beyond those outlined above. But there
are also some disadvantages.
Pros
Improved accuracy by removing human involvement in verification
Cost reductions by eliminating third-party verification
Decentralization makes it harder to tamper with
Transactions are secure, private, and efficient
Transparent technology
Provides a banking alternative and way to secure personal information for citizens of countries with
unstable or underdeveloped governments
Cons
Significant technology cost associated with mining bitcoin
Low transactions per second
History of use in illicit activities
Regulation
Here are the selling points of blockchain for businesses on the market today in more detail.
Accuracy of the Chain
Transactions on the blockchain network are approved by a network of thousands of computers. This
removes almost all human involvement in the verification process, resulting in less human error and an
accurate record of information. Even if a computer on the network were to make a computational
mistake, the error would only be made to one copy of the blockchain. In order for that error to spread to
the rest of the blockchain, it would need to be made by at least 51% of the network’s computers—a
near impossibility for a large and growing network the size of Bitcoin’s.
Cost Reductions
Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to
perform a marriage. Blockchain eliminates the need for third-party verification and, with it, their
associated costs. Business owners incur a small fee whenever they accept payments using credit cards,
for example, because banks and payment processing companies have to process those transactions.
Bitcoin, on the other hand, does not have a central authority and has limited transaction fees.
Decentralization
Blockchain does not store any of its information in a central location. Instead, the blockchain is copied
and spread across a network of computers. Whenever a new block is added to the blockchain, every
computer on the network updates its blockchain to reflect the change. By spreading that information
across a network, rather than storing it in one central database, blockchain becomes more difficult to
tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the
information, rather than the entire network, would be compromised.
Efficient Transactions
Transactions placed through a central authority can take up to a few days to settle. If you attempt to
deposit a check on Friday evening, for example, you may not actually see funds in your account until
Monday morning. Whereas financial institutions operate during business hours, five days a week,
blockchain is working 24 hours a day, seven days a week, and 365 days a year. Transactions can be
completed in as little as ten minutes and can be considered secure after just a few hours. This is
particularly useful for cross-border trades, which usually take much longer because of time-zone issues
and the fact that all parties must confirm payment processing.
Private Transactions
Many blockchain networks operate as public databases, meaning that anyone with an internet
connection can view a list of the network’s transaction history. Although users can access details about
transactions, they cannot access identifying information about the users making those transactions. It is
a common misperception that blockchain networks like bitcoin are anonymous, when in fact they are
only confidential.
That is, when a user makes public transactions, their unique code called a public key, is recorded on the
blockchain, rather than their personal information. If a person has made a Bitcoin purchase on an
exchange that requires identification then the person’s identity is still linked to their blockchain address,
but a transaction, even when tied to a person’s name, does not reveal any personal information.
Secure Transactions
Once a transaction is recorded, its authenticity must be verified by the blockchain network. Thousands
of computers on the blockchain rush to confirm that the details of the purchase are correct. After a
computer has validated the transaction, it is added to the blockchain block. Each block on the blockchain
contains its own unique hash, along with the unique hash of the block before it. When the information
on a block is edited in any way, that block’s hashcode changes—however, the hash code on the block
after it would not. This discrepancy makes it extremely difficult for information on the blockchain to be
changed without notice.
Transparency
Most blockchains are entirely open-source software. This means that anyone and everyone can view its
code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security. This also means
that there is no real authority on who controls Bitcoin’s code or how it is edited. Because of this, anyone
can suggest changes or upgrades to the system. If a majority of the network users agree that the new
version of the code with the upgrade is sound and worthwhile then Bitcoin can be updated.
Banking the Unbanked

Perhaps the most profound facet of blockchain and Bitcoin is the ability for anyone, regardless of
ethnicity, gender, or cultural background, to use it. According to the world bank there are nearly 2 billion
adults that do not have bank accounts or any means of storing their money or wealth.5 Nearly all of
these individuals live in developing countries where the economy is in its infancy and entirely dependent
on cash.
These people often earn little money that is paid in physical cash. They then need to store this physical
cash in hidden locations in their homes or places of living leaving them subject to robbery or
unnecessary violence. Keys to a bitcoin wallet can be stored on a piece of paper, a cheap cell phone, or
even memorized if necessary. For most people, it is likely that these options are more easily hidden than
a small pile of cash under a mattress.
Blockchains of the future are also looking for solutions to not only be a unit of account for wealth
storage, but also to store medical records, property rights, and a variety of other legal contracts.
While there are significant upsides to the blockchain, there are also significant challenges to its
adoption. The roadblocks to the application of blockchain technology today are not just technical. The
real challenges are political and regulatory, for the most part, to say nothing of the thousands of hours
(read: money) of custom software design and back-end programming required to integrate blockchain
to current business networks. Here are some of the challenges standing in the way of widespread
blockchain adoption.
Technology Cost
Although blockchain can save users money on transaction fees, the technology is far from free. The
“proof of work” system that bitcoin uses to validate transactions, for example, consumes vast amounts
of computational power. In the real world, the power from the millions of computers on the bitcoin
network is close to what Denmark consumes annually. Assuming electricity costs of $0.03~$0.05 per
kilowatt-hour, mining costs exclusive of hardware expenses are about $5,000~$7,000 per coin.10
Despite the costs of mining bitcoin, users continue to drive up their electricity bills in order to validate
transactions on the blockchain. That’s because when miners add a block to the bitcoin blockchain, they
are rewarded with enough bitcoin to make their time and energy worthwhile. When it comes to
blockchains that do not use cryptocurrency, however, miners will need to be paid or otherwise
incentivized to validate transactions.
Some solutions to these issues are beginning to arise. For example, bitcoin mining farms have been set
up to use solar power, excess natural gas from fracking sites, or power from wind farms.
Speed Inefficiency
Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s “proof of work”
system takes about ten minutes to add a new block to the blockchain. At that rate, it’s estimated that
the blockchain network can only manage about seven transactions per second (TPS). Although other
cryptocurrencies such as Ethereum perform better than bitcoin, they are still limited by blockchain.
Legacy brand Visa, for context, can process 24,000 TPS.
Solutions to this issue have been in development for years. There are currently blockchains that are
boasting over 30,000 transactions per second.
Illegal Activity
While confidentiality on the blockchain network protects users from hacks and preserves privacy, it also
allows for illegal trading and activity on the blockchain network. The most cited example of blockchain
being used for illicit transactions is probably the Silk Road, an online “dark web” drug marketplace
operating from February 2011 until October 2013 when it was shut down by the FBI.6
The website allowed users to browse the website without being tracked using the Tor browser and
make illegal purchases in Bitcoin or other cryptocurrencies. Current U.S. regulations require financial
service providers to obtain information about their customers when they open an account, verify the
identity of each customer, and confirm that customers do not appear on any list of known or suspected
terrorist organizations. This system can be seen as both a pro and a con. It gives anyone access to
financial accounts but also allows criminals to more easily transact. Many have argued that the good
uses of crypto, like banking the unbanked world, outweigh the bad uses of cryptocurrency, especially
when most illegal activity is still accomplished through untraceable cash.
Regulation
Many in the crypto space have expressed concerns about government regulation over cryptocurrencies.
While it is getting increasingly difficult and near impossible to end something like Bitcoin as its
decentralized network grows, governments could theoretically make it illegal to own cryptocurrencies or
participate in their networks.
Over time this concern has grown smaller as large companies like PayPal begin to allow the ownership
and use of cryptocurrencies on its platform.
First proposed as a research project in 1991,7 blockchain is comfortably settling into its late twenties.
Like most millennials its age, blockchain has seen its fair share of public scrutiny over the last two
decades, with businesses around the world speculating about what the technology is capable of and
where it’s headed in the years to come.
With many practical applications for the technology already being implemented and explored,
blockchain is finally making a name for itself at age twenty-seven, in no small part because of bitcoin and
cryptocurrency. As a buzzword on the tongue of every investor in the nation, blockchain stands to make
business and government operations more accurate, efficient, secure, and cheap with fewer middlemen.
As we prepare to head into the third decade of blockchain, it’s no longer a question of "if" legacy
companies will catch on to the technology—it's a question of "when."
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Related Terms
What is digital copy in cryptocurrency?
A digital copy is a duplicate record of every Bitcoin transaction that has taken place over a peer-to-peer
network. more
Bitcoin Maximalism
Bitcoin maximalists favor bitcoin over other cryptocurrencies and are unapologetically in favor of a
bitcoin monopoly in the future. more
What Is Ethereum?
Ethereum is a blockchain-based software platform for creating and using smart contracts and distributed
apps; the cryptocurrency Ether was created for it. more
Block Height
Block Height indicates the overall length of a blockchain. more
Ether (ETH)
Ether is the cryptocurrency of the Ethereum network. All of the programs linked with the Ethereum
network require computing power; Ether is the token that is used to pay for this power. more
Application-Specific Integrated Circuit (ASIC) Miner Definition
An application-specific integrated circuit (ASIC) miner is a computerized device that was designed for the
sole purpose of mining bitcoins. more
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Blockchain Technology Defined

Blockchain technology is most simply defined as a decentralized, distributed ledger that records the
provenance of a digital asset. By inherent design, the data on a blockchain is unable to be modified,
which makes it a legitimate disruptor for industries like payments, cybersecurity and healthcare. Our
guide will walk you through what it is, how it's used and its history.
OVERVIEW
what is blockchain technology
BLOCKCHAIN IS MOST SIMPLY DEFINED AS A DECENTRALIZED, DISTRIBUTED LEDGER TECHNOLOGY THAT

RECORDS THE PROVENANCE OF A DIGITAL ASSET.
What is Blockchain?
Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any
digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.
A simple analogy for understanding blockchain technology is a Google Doc. When we create a document
and share it with a group of people, the document is distributed instead of copied or transferred. This
creates a decentralized distribution chain that gives everyone access to the document at the same time.
No one is locked out awaiting changes from another party, while all modifications to the doc are being
recorded in real-time, making changes completely transparent.
Of course, blockchain is more complicated than a Google Doc, but the analogy is apt because it
illustrates three critical ideas of the technology:
BLOCKCHAIN EXPLAINED: A QUICK OVERVIEW
A blockchain is a database that stores encrypted blocks of data then chains them together to form a
chronological single-source-of-truth for the data
Digital assets are distributed instead of copied or transferred, creating an immutable record of an asset
The asset is decentralized, allowing full real-time access and transparency to the public
A transparent ledger of changes preserves integrity of the document, which creates trust in the asset.
Blockchain’s inherent security measures and public ledger make it a prime technology for almost every
single sector
Blockchain is an especially promising and revolutionary technology because it helps reduce risk, stamps
out fraud and brings transparency in a scaleable way for myriad uses.
How Does Blockchain Work?
The whole point of using a blockchain is to let people — in particular, people who don't trust one
another — share valuable data in a secure, tamperproof way.
— MIT Technology Review
Blockchain consists of three important concepts: blocks, nodes and miners.
Blocks
Every chain consists of multiple blocks and each block has three basic elements:
The data in the block.
A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which
then generates a block header hash.
The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be
extremely small).
When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the
block is considered signed and forever tied to the nonce and hash unless it is mined.
Miners
Miners create new blocks on the chain through a process called mining.
In a blockchain every block has its own unique nonce and hash, but also references the hash of the
previous block in the chain, so mining a block isn't easy, especially on large chains.
Miners use special software to solve the incredibly complex math problem of finding a nonce that
generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly
four billion possible nonce-hash combinations that must be mined before the right one is found. When
that happens miners are said to have found the "golden nonce" and their block is added to the chain.
Making a change to any block earlier in the chain requires re-mining not just the block with the change,
but all of the blocks that come after. This is why it's extremely difficult to manipulate blockchain
technology. Think of it is as "safety in math" since finding golden nonces requires an enormous amount
of time and computing power.
When a block is successfully mined, the change is accepted by all of the nodes on the network and the
miner is rewarded financially.
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Nodes
One of the most important concepts in blockchain technology is decentralization. No one computer or
organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain.
Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the
network functioning.
Every node has its own copy of the blockchain and the network must algorithmically approve any newly
mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every
action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric
identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the blockchain maintain
integrity and creates trust among users. Essentially, blockchains can be thought of as the scaleability of
trust via technology.
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USES
blockchain uses cryptocurrency
Cryptocurrencies: The Beginning of Blockchain's Technological Rise

Blockchain’s most well-known use (and maybe most controversial) is in cryptocurrencies.
Cryptocurrencies are digital currencies (or tokens), like Bitcoin, Ethereum or Litecoin, that can be used to
buy goods and services. Just like a digital form of cash, crypto can be used to buy everything from your
lunch to your next home. Unlike cash, crypto uses blockchain to act as both a public ledger and an
enhanced cryptographic security system, so online transactions are always recorded and secured.
HOW DOES CRYPTOCURRENCY WORK?
Cryptocurrencies are digital currencies that use blockchain technology to record and secure every
transaction. A cryptocurrency (for example, Bitcoin) can be used as a digital form of cash to pay for
everything from everyday items to larger purchases like cars and homes. It can be bought using one of
several digital wallets or trading platforms, then digitally transferred upon purchase of an item, with the
blockchain recording the transaction and the new owner. The appeal of cryptocurrencies is that
everything is recorded in a public ledger and secured using cryptography, making an irrefutable,
timestamped and secure record of every payment.
To date, there are roughly 6,700 cryptocurrencies in the world that have a total market cap around $1.6
trillion, with Bitcoin holding a majority of the value. These tokens have become incredibly popular over
the last few years, with one Bitcoin equaling $60,000. Here are some of the main reasons why everyone
is suddenly taking notice of cryptocurrencies:
Blockchain’s security makes theft much harder since each cryptocurrency has its own irrefutable
identifiable number that is attached to one owner.
Crypto reduces the need for individualized currencies and central banks- With blockchain, crypto can be
sent to anywhere and anyone in the world without the need for currency exchanging or without
interference from central banks.
Cryptocurrencies can make some people rich- Speculators have been driving up the price of crypto,
especially Bitcoin, helping some early adopters to become billionaires. Whether this is actually a positive
has yet to be seen, as some retractors believe that speculators do not have the long-term benefits of
crypto in mind.
More and more large corporations are coming around to the idea of a blockchain-based digital currency
for payments. In February 2021, Tesla famously announced that it would invest $1.5 billion into Bitcoin
and accept it as payment for their cars.
Of course, there are many legitimate arguments against blockchain-based digital currencies. First, crypto
isn’t a very regulated market. Many governments were quick to jump into crypto, but few have a
staunch set of codified laws regarding it. Additionally, crypto is incredibly volatile due to those
aforementioned speculators. In 2016, Bitcoin was priced around $450 per token. It then jumped to
about $16,000 a token in 2018, dipped to around $3,100, then has since increased to more than
$60,000. Lack of stability has caused some people to get very rich, while a majority have still lost
thousands.
Whether or not digital currencies are the future remains to be seen. For now, it seems as if blockchain’s
meteoric rise is more starting to take root in reality than pure hype. Though it’s still making headway in
this entirely-new, highly-exploratory field, blockchain is also showing promise beyond Bitcoin.
blockchain uses ethereum
Beyond Bitcoin: Ethereum Blockchain
Originally created as the ultra-transparent ledger system for Bitcoin to operate on, blockchain has long
been associated with cryptocurrency, but the technology's transparency and security has seen growing
adoption in a number of areas, much of which can be traced back to the development of the Ethereum
blockchain.
In late 2013, Russian-Canadian developer Vitalik Buterin published a white paper that proposed a
platform combining traditional blockchain functionality with one key difference: the execution of
computer code. Thus, the Ethereum Project was born.
Ethereum blockchain lets developers create sophisticated programs that can communicate with one
another on the blockchain.
Tokens
Ethereum programmers can create tokens to represent any kind of digital asset, track its ownership and
execute its functionality according to a set of programming instructions.
Tokens can be music files, contracts, concert tickets or even a patient's medical records. Most recently,
Non-Fungible Tokens (NFTs) have become all the rage. NFTs are unique blockchain-based tokens that
store digital media (like a video, music or art). Each NFT has the ability to verify authenticity, past history
and sole ownership of the piece of digital media. NFTs have become wildly popular because they offer a
new wave of digital creators the ability to buy and sell their creation, while getting proper credit and a
fair share of profits.
Newfound uses for blockchain have broadened the potential of the ledger technology to permeate
other sectors like media, government and identity security. Thousands of companies are currently
researching and developing products and ecosystems that run entirely on the burgeoning technology.
Blockchain is challenging the current status quo of innovation by letting companies experiment with
groundbreaking technology like peer-to-peer energy distribution or decentralized forms for news media.
Much like the definition of blockchain, the uses for the ledger system will only evolve as technology
evolves.
BLOCKCHAIN APPLICATIONS
Blockchain has a nearly endless amount of applications across almost every industry. The ledger
technology can be applied to track fraud in finance, securely share patient medical records between
healthcare professionals and even acts as a better way to track intellectual property in business and
music rights for artists.
HISTORY
history of blockchain
History of Blockchain
Although blockchain is a new technology, it already boasts a rich and interesting history. The following is
a brief timeline of some of the most important and notable events in the development of blockchain.
2008
Satoshi Nakamoto, a pseudonym for a person or group, publishes “Bitcoin: A Peer to Peer Electronic
Cash System."
2009
The first successful Bitcoin (BTC) transaction occurs between computer scientist Hal Finney and the
mysterious Satoshi Nakamoto.
2010
Florida-based programmer Laszlo Hanycez completes the first ever purchase using Bitcoin — two Papa
John’s pizzas. Hanycez transferred 10,000 BTC’s, worth about $60 at the time. Today it's worth $80
million.
The market cap of Bitcoin officially exceeds $1 million.
2011
1 BTC = $1USD, giving the cryptocurrency parity with the US dollar.
Electronic Frontier Foundation, Wikileaks and other organizations start accepting Bitcoin as donations.
2012
Blockchain and cryptocurrency are mentioned in popular television shows like The Good Wife, injecting
blockchain into pop culture.
Bitcoin Magazine launched by early Bitcoin developer Vitalik Buterin.
2013
BTC market cap surpassed $1 billion.
Bitcoin reached $100/BTC for first time.
Buterin publishes “Ethereum Project" paper suggesting that blockchain has other possibilities besides
Bitcoin (e.g., smart contracts).
2014
Gaming company Zynga, The D Las Vegas Hotel and Overstock.com all start accepting Bitcoin as
payment.
Buterin’s Ethereum Project is crowdfunded via an Initial Coin Offering (ICO) raising over $18 million in
BTC and opening up new avenues for blockchain.
R3, a group of over 200 blockchain firms, is formed to discover new ways blockchain can be
implemented in technology.
PayPal announces Bitcoin integration.
2015
Number of merchants accepting BTC exceeds 100,000.
NASDAQ and San-Francisco blockchain company Chain team up to test the technology for trading shares
in private companies.
2016
Tech giant IBM announces a blockchain strategy for cloud-based business solutions.
Government of Japan recognizes the legitimacy of blockchain and cryptocurrencies.
2017
Bitcoin reaches $1,000/BTC for first time.
Cryptocurrency market cap reaches $150 billion.
JP Morgan CEO Jamie Dimon says he believes in blockchain as a future technology, giving the ledger
system a vote-of-confidence from Wall Street.
Bitcoin reaches its all-time high at $19,783.21/BTC.
Dubai announces its government will be blockchain-powered by 2020.
2018
Facebook commits to starting a blockchain group and also hints at the possibility of creating its own
cryptocurrency.
IBM develops a blockchain-based banking platform with large banks like Citi and Barclays signing on.
2019
China’s President Ji Xinping publicly embraces blockchain as China’s central bank announces it is working
on its own cryptocurrency
Twitter & Square CEO Jack Dorsey announces that Square will be hiring blockchain engineers to work on
the company’s future crypto plans
The New York Stock Exchange (NYSE) announces the creation of Bakkt - a digital wallet company that
includes crypto trading
2020
Bitcoin almost reaches $30,000 by the end of 2020
PayPal announces it will allow users to buy, sell and hold cryptocurrencies
The Bahamas becomes the world’s first country to launch its central bank digital currency, fittingly
known as the “Sand Dollar”
Blockchain becomes a key player in the fight against COVID-19, mainly for securely storing medical
research data and patient information
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A blockchain is a growing list of records, called blocks, that are linked together using cryptography.[1][2]
[3][4] Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data
(generally represented as a Merkle tree). The timestamp proves that the transaction data existed when
the block was published in order to get into its hash. As blocks each contain information about the block
previous to it, they form a chain, with each additional block reinforcing the ones before it. Therefore,
blockchains are resistant to modification of their data because once recorded, the data in any given
block cannot be altered retroactively without altering all subsequent blocks.
Bitcoin blockchain structure
Blockchains are typically managed by a peer-to-peer network for use as a publicly distributed ledger,
where nodes collectively adhere to a protocol to communicate and validate new blocks. Although
blockchain records are not unalterable as forks are possible, blockchains may be considered secure by
design and exemplify a distributed computing system with high Byzantine fault tolerance.[5]
The blockchain was invented by a person (or group of people) using the name Satoshi Nakamoto in 2008
to serve as the public transaction ledger of the cryptocurrency bitcoin.[3] The identity of Satoshi
Nakamoto remains unknown to date. The invention of the blockchain for bitcoin made it the first digital
currency to solve the double-spending problem without the need of a trusted authority or central
server. The bitcoin design has inspired other applications[3][2] and blockchains that are readable by the
public and are widely used by cryptocurrencies. The blockchain is considered a type of payment rail.[6]
Private blockchains have been proposed for business use but Computerworld called the marketing of
such privatized blockchains without a proper security model "snake oil".[7] However, others have
argued that permissioned blockchains, if carefully designed, may be more decentralized and therefore
more secure in practice than permissionless ones.[4][8
A blockchain is a growing list of records, called blocks, that are linked together using cryptography.[1][2]
[3][4] Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data
(generally represented as a Merkle tree). The timestamp proves that the transaction data existed when
the block was published in order to get into its hash. As blocks each contain information about the block
previous to it, they form a chain, with each additional block reinforcing the ones before it. Therefore,
blockchains are resistant to modification of their data because once recorded, the data in any given
block cannot be altered retroactively without altering all subsequent blocks.
Bitcoin blockchain structure
Blockchains are typically managed by a peer-to-peer network for use as a publicly distributed ledger,
where nodes collectively adhere to a protocol to communicate and validate new blocks. Although
blockchain records are not unalterable as forks are possible, blockchains may be considered secure by
design and exemplify a distributed computing system with high Byzantine fault tolerance.[5]
The blockchain was invented by a person (or group of people) using the name Satoshi Nakamoto in 2008
to serve as the public transaction ledger of the cryptocurrency bitcoin.[3] The identity of Satoshi
Nakamoto remains unknown to date. The invention of the blockchain for bitcoin made it the first digital
currency to solve the double-spending problem without the need of a trusted authority or central
server. The bitcoin design has inspired other applications[3][2] and blockchains that are readable by the
public and are widely used by cryptocurrencies. The blockchain is considered a type of payment rail.[6]
Private blockchains have been proposed for business use but Computerworld called the marketing of
such privatized blockchains without a proper security model "snake oil".[7] However, others have
argued that permissioned blockchains, if carefully designed, may be more decentralized and therefore
more secure in practice than permissionless ones.[4][8
Advisor Investing
What Is Blockchain?
David Rodeck
John Schmidt
David Rodeck, John Schmidt
Contributor, Editor
Updated: Jun 9, 2021, 10:16am
Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page,
but that doesn't affect our editors' opinions or evaluations.
What Is Blockchain?
Getty
Blockchain is the innovative database technology that’s at the heart of nearly all cryptocurrencies. By
distributing identical copies of a database across an entire network, blockchain makes it very difficult to
hack or cheat the system. While cryptocurrency is the most popular use for blockchain presently, the
technology offers the potential to serve a very wide range of applications.
What Is Blockchain?
At its core, blockchain is a distributed digital ledger that stores data of any kind. A blockchain can record
information about cryptocurrency transactions, NFT ownership or DeFi smart contracts.
While any conventional database can store this sort of information, blockchain is unique in that it’s
totally decentralized. Rather than being maintained in one location, by a centralized administrator—
think of an Excel spreadsheet or a bank database—many identical copies of a blockchain database are
held on multiple computers spread out across a network. These individual computers are referred to as
nodes.
How Blockchain Works
The name blockchain is hardly accidental: The digital ledger is often described as a “chain” that’s made
up of individual “blocks” of data. As fresh data is periodically added to the network, a new “block” is
created and attached to the “chain.” This involves all nodes updating their version of the blockchain
ledger to be identical.
How these new blocks are created is key to why blockchain is considered highly secure. A majority of
nodes must verify and confirm the legitimacy of the new data before a new block can be added to the
ledger. For a cryptocurrency, they might involve ensuring that new transactions in a block were not
fraudulent, or that coins had not been spent more than once. This is different from a standalone
database or spreadsheet, where one person can make changes without oversight.
“Once there is consensus, the block is added to the chain and the underlying transactions are recorded
in the distributed ledger,” says C. Neil Gray, partner in the fintech practice areas at Duane Morris LLP.
“Blocks are securely linked together, forming a secure digital chain from the beginning of the ledger to
the present.”
Transactions are typically secured using cryptography, meaning the nodes need to solve complex
mathematical equations to process a transaction.
“As a reward for their efforts in validating changes to the shared data, nodes are typically rewarded with
new amounts of the blockchain’s native currency—e.g., new bitcoin on the bitcoin blockchain,” says
Sarah Shtylman, fintech and blockchain counsel with Perkins Coie.
There are both public and private blockchains. In a public blockchain, anyone can participate meaning
they can read, write or audit the data on the blockchain. Notably, it is very difficult to alter transactions
logged in a public blockchain as no single authority controls the nodes.
A private blockchain, meanwhile, is controlled by an organization or group. Only it can decide who is
invited to the system plus it has the authority to go back and alter the blockchain. This private
blockchain process is more similar to an in-house data storage system except spread over multiple
nodes to increase security.
How Is Blockchain Used?
Blockchain technology is used for many different purposes, from providing financial services to
administering voting systems.
Cryptocurrency
The most common use of blockchain today is as the backbone of cryptocurrencies, like Bitcoin or
Ethereum. When people buy, exchange or spend cryptocurrency, the transactions are recorded on a
blockchain. The more people use cryptocurrency, the more widespread blockchain could become.
“Because cryptocurrencies are volatile, they are not yet used much to purchase goods and services. But
that is changing as PayPal, Square and other money service businesses make digital asset services
broadly available to vendors and retail customers,” notes Patrick Daugherty, senior partner of Foley &
Lardner and lead of the firm’s blockchain task force.
Banking
Beyond cryptocurrency, blockchain is being used to process transactions in fiat currency, like dollars and
euros. This could be faster than sending money through a bank or other financial institution as the
transactions can be verified more quickly and processed outside of normal business hours.
Asset Transfers
Blockchain can also be used to record and transfer the ownership of different assets. This is currently
very popular with digital assets like NFTs, a representation of ownership of digital art and videos.
However, blockchain could also be used to process the ownership of real-life assets, like the deed to real
estate and vehicles. The two sides of a party would first use the blockchain to verify that one owns the
property and the other has the money to buy; then they could complete and record the sale on the
blockchain.
Using this process, they could transfer the property deed without manually submitting paperwork to
update the local county’s government records; it would be instantaneously updated in the blockchain.
Smart Contracts
Another blockchain innovation are self-executing contracts commonly called “smart contracts.” These
digital contracts are enacted automatically once conditions are met. For instance, a payment for a good
might be released instantly once the buyer and seller have met all specified parameters for a deal.
“We see great potential in the area of smart contracts—using blockchain technology and coded
instructions to automate legal contracts,” says Gray. “A properly coded smart legal contract on a
distributed ledger can minimize, or preferably eliminate, the need for outside third parties to verify
performance.”
Supply Chain Monitoring
Supply chains involve massive amounts of information, especially as goods go from one part of the
world to the other. With traditional data storage methods, it can be hard to trace the source of
problems, like which vendor poor-quality goods came from. Storing this information on blockchain
would make it easier to go back and monitor the supply chain, such as with IBM’s Food Trust, which uses
blockchain technology to track food from its harvest to its consumption.
Voting
Experts are looking into ways to apply blockchain to prevent fraud in voting. In theory, blockchain voting
would allow people to submit votes that couldn’t be tampered with as well as would remove the need
to have people manually collect and verify paper ballots.
Higher Accuracy of Transactions
Because a blockchain transaction must be verified by multiple nodes, this can reduce error. If one node
has a mistake in the database, the others would see it’s different and catch the error.
In contrast, in a traditional database, if someone makes a mistake, it may be more likely to go through.
In addition, every asset is individually identified and tracked on the blockchain ledger, so there is no
chance of double spending it (like a person overdrawing their bank account, thereby spending money
twice).
No Need for Intermediaries
Using blockchain, two parties in a transaction can confirm and complete something without working
through a third party. This saves time as well as the cost of paying for an intermediary like a bank.
“It has the ability to bring greater efficiency to all digital commerce, to increase financial empowerment
to the unbanked or underbanked populations of the world and to power a new generation of internet
applications as a result,” says Shtylman.
Extra Security
Theoretically, a decentralized network, like blockchain, makes it nearly impossible for someone to make
fraudulent transactions. To enter in forged transactions, they would need to hack every node and
change every ledger. While this isn’t necessarily impossible, many cryptocurrency blockchain systems
use proof-of-stake or proof-of-work transaction verification methods that make it difficult, as well as not
in participants’ best interests, to add fraudulent transactions.
More Efficient Transfers
Since blockchains operate 24/7, people can make more efficient financial and asset transfers, especially
internationally. They don’t need to wait days for a bank or a government agency to manually confirm
everything.
Limit on Transactions per Second
Given that blockchain depends on a larger network to approve transactions, there’s a limit to how
quickly it can move. For example, Bitcoin can only process 4.6 transactions per second versus 1,700 per
second with Visa. In addition, increasing numbers of transactions can create network speed issues. Until
this improves, scalability is a challenge.
High Energy Costs
Having all the nodes working to verify transactions takes significantly more electricity than a single
database or spreadsheet. Not only does this make blockchain-based transactions more expensive, but it
also creates a large carbon burden for the environment.
Because of this, some industry leaders are beginning to move away from certain blockchain
technologies, like Bitcoin: For instance, Elon Musk recently said Tesla would stop accepting Bitcoin partly
because he was concerned about the damage to the environment.
Energy usage trend over past few months is insane https://t.co/E6o9s87trw

pic.twitter.com/bmv9wotwKe
— Elon Musk (@elonmusk) May 13, 2021
Risk of Asset Loss
Some digital assets are secured using a cryptographic key, like cryptocurrency in a blockchain wallet. You
need to carefully guard this key.
“If the owner of a digital asset loses the private cryptographic key that gives them access to their asset,
currently there is no way to recover it—the asset is gone permanently,” says Gray. Because the system is
decentralized, you can’t call a central authority, like your bank, to ask to regain access.
Potential for Illegal Activity
Blockchain’s decentralization adds more privacy and confidentiality, which unfortunately makes it
appealing to criminals. It’s harder to track illicit transactions on blockchain than through bank
transactions that are tied to a name.
How to Invest in Blockchain
You can’t actually invest in blockchain itself, since it’s merely a system for storing and processing
transactions. However, you can invest in assets and companies using this technology.
“The easiest way is to purchase cryptocurrencies, like Bitcoin, Ethereum and other tokens that run on a
blockchain,” says Gray.
Another option is to invest in blockchain companies using this technology. For example, Santander Bank
is experimenting with blockchain-based financial products, and if you were interested in gaining
exposure to blockchain technology in your portfolio, you might buy its stock.
For a more diversified approach, you could buy into an exchange-traded fund (ETF) that invests in
blockchain assets and companies, like the Amplify Transformational Data Sharing ETF (BLOK), which puts
at least 80% of its assets in blockchain companies.
The Bottom Line
Despite its promise, blockchain remains something of a niche technology. Gray sees the potential for
blockchain being used in more situations but it depends on future government policies. “It remains to be
seen when and if regulators like the SEC will take action. One thing is evident—the goal will be to
protect markets and investors,” he says.
Shtylman likens blockchain to the early stages of the internet. “It took about 15 years of having the
internet before we saw the first version of Google and over 20 for Facebook. It’s hard to predict where
blockchain technology will be in another 10 or 15 years, but much like the internet, it will significantly
transform the ways we transact and interact with each other in the future.”
Hurdles remain, especially with the transaction limits and energy costs, but for investors who see the
potential of the technology, blockchain-based investments may be a bet worth taking.
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DEEP DIVE
The WIRED Guide to the Blockchain
It's super secure and slightly hard to understand, but the idea of creating tamper-proof databases has
captured the attention of everyone from anarchist techies to staid bankers.
ILLUSTRATIONS: RADIO
Depending on who you ask, blockchains are either the most important technological innovation since
the internet or a solution looking for a problem.
The original blockchain is the decentralized ledger behind the digital currency bitcoin. The ledger
consists of linked batches of transactions known as blocks (hence the term blockchain), and an identical
copy is stored on each of the roughly 60,000 computers that make up the bitcoin network. Each change
to the ledger is cryptographically signed to prove that the person transferring virtual coins is the actual
owner of those coins. But no one can spend their coins twice, because once a transaction is recorded in
the ledger, every node in the network will know about it.
Who paved the way for blockchains?
DigiCash (1989)
DigiCash was founded by David Chaum to create a digital-currency system that enabled users to make
untraceable, anonymous transactions. It was perhaps too early for its time. It went bankrupt in 1998,
just as ecommerce was finally taking off.
E-Gold (1996)
E-gold was a digital currency backed by real gold. The company was plagued by legal troubles, and its
founder Douglas Jackson eventually pled guilty to operating an illegal money-transfer service and
conspiracy to commit money laundering.
B-Money and Bit-Gold (1998)
Cryptographers Wei Dai (B-money) and Nick Szabo (Bit-gold) each proposed separate but similar
decentralized currency systems with a limited supply of digital money issued to people who devoted
computing resources.
Ripple Pay (2004)
Now a cryptocurrency, Ripple started out as a system for exchanging digital IOUs between trusted
parties.
Reusable Proofs of Work (RPOW) (2004)
RPOW was a prototype of a system for issuing tokens that could be traded with others in exchange for
computing intensive work. It was inspired in part by Bit-gold and created by bitcoin's second user, Hal
Finney.
The idea is to both keep track of how each unit of the virtual currency is spent and prevent unauthorized
changes to the ledger. The upshot: No bitcoin user has to trust anyone else, because no one can cheat
the system.
Other digital currencies have imitated this basic idea, often trying to solve perceived problems with
bitcoin by building new cryptocurrencies on new blockchains. But advocates have seized on the idea of a
decentralized, cryptographically secure database for uses beyond currency. Its biggest boosters believe
blockchains can not only replace central banks but usher in a new era of online services that would be
impossible to censor. These new-age apps, advocates say, would be more answerable to users and
outside the control of internet giants like Google and Facebook.
Unless, of course, Facebook runs away with the idea itself. In June, Facebook announced Libra, a new
blockchain that will support a digital currency. Unlike the thousands of anybodys who run Bitcoin nodes,
it will be controlled by an association comprised of just 100 companies and NGOs. Libra is certainly a
challenge to central banks, not least because it’s a privately controlled monetary system that will span
the globe. But replacing government with corporations is not exactly the revolution that enthusiasts
imagined blockchain would bring. So far, the crypto community is divided on whether Libra is a good
thing. Some see Facebook’s effort as a corruption of a technology designed to ensure that you don’t
need to trust your fellow users---or any central authority. Others are celebrating it as the moment that
blockchain goes mainstream.
Other so-called “private” blockchains, like Libra, are growing in popularity. Big financial services
companies, including JP Morgan and the Depository Trust & Clearing Corporation, are experimenting
with blockchains and blockchain-like technologies to improve the efficiency of trading stocks and other
assets. Traders buy and sell stocks rapidly using current technology, of course, but the behind-the-
scenes process of transferring ownership of those assets can take days. Some technologists believe
blockchains could help with that.
Blockchains also have potential applications in the seemingly boring world of corporate compliance.
After all, storing records in an immutable ledger is a pretty good way to assure auditors that those
records haven't been tampered with. This might be good for more than just catching embezzlers or tax
cheats. Walmart, for example, is using an IBM-developed blockchain to track its supply chain, which
could help it trace the source of food contaminants. Many other experiments have emerged: Voting on
the blockchain. Land records. Used cars. Real estate. Streaming content. Hence the phrase “xxx on the
blockchain” as a catch-all for the enduring hype cycle. The question is, if one organization (say, Walmart)
has control of the data, did it really need blockchain at all?
It's too early to say which experiments will stick. But the idea of creating tamper-proof databases has
captured the attention of everyone from anarchist techies to staid bankers.
The First Blockchain
The original bitcoin software was released to the public in January 2009. It was open source software,
meaning anyone could examine the code and reuse it. And many have. At first, blockchain enthusiasts
sought to simply improve on bitcoin. Litecoin, another virtual currency based on the bitcoin software,
seeks to offer faster transactions.
One of the first projects to repurpose the bitcoin code to use it for more than currency was Namecoin, a
system for registering ".bit" domain names. The traditional domain-name management system---the
one that helps your computer find our website when you type wired.com---depends on a central
database, essentially an address book for the internet. Internet-freedom activists have long worried that
this traditional approach makes censorship too easy, because governments can seize a domain name by
forcing the company responsible for registering it to change the central database. The US government
has done this several times to shut sites accused of violating gambling or intellectual-property laws.
Namecoin tries to solve this problem by storing .bit domain registrations in a blockchain, which
theoretically makes it impossible for anyone without the encryption key to change the registration
information. To seize a .bit domain name, a government would have to find the person responsible for
the site and force them to hand over the key.
What's an "ICO"?
Ethereum and other blockchain-based projects have raised funds through a controversial practice called
an "initial coin offering," or ICO: The creators of new digital currencies sell a certain amount of the
currency, usually before they’ve finished the software and technology that underpins it. The idea is that
investors can get in early while giving developers the funds to finish the tech. The catch is that these
offerings have traditionally operated outside the regulatory framework meant to protect investors. Since
the first tidal wave of ICOs in 2017, the SEC has said that virtually all violated securities law. Newer
companies are increasingly looking for regulatory loopholes: a more common practice these days to
raise money the traditional way (through VCs) and “airdrop” coins to users for free.
In 2013, a startup called Ethereum published a paper outlining an idea that promised to make it easier
for coders to create their own blockchain-based software without having to start from scratch, without
relying on the original bitcoin software. In 2015 the company released its platform for building “smart
contracts,” software applications that can enforce an agreement without human intervention. For
example, you could create a smart contract to bet on tomorrow’s weather. You and your gambling
partner would upload the contract to the Ethereum network and then send a little digital currency,
which the software would essentially hold in escrow. The next day, the software would check the
weather and then send the winner their earnings. A number of "prediction markets" have been built on
the platform, enabling people to bet on more interesting outcomes, such as which political party will win
an election.
So long as the software is written correctly, there's no need to trust anyone in these transactions. But
that turns out to be a big catch. In 2016, a hacker made off with about $50 million worth of Ethereum's
custom currency intended for a democratized investment scheme where investors would pool their
money and vote on how to invest it. A coding error allowed a still unknown person to make off with the
virtual cash. Lesson: It's hard to remove humans from transactions, with or without a blockchain.
Blockchains had other limitations, too. The security protocols that allow people to trust blockchain
systems without a central overseer are notoriously slow (not to mention energy-intensive). Ethereum
gave developers the tools to write applications, but the tech couldn’t yet handle the fancy graphics of
your new decentralized computer game or the volume of users needed to make your open social
network useful. Dozens of competitors have since hatched out of academic labs and start-ups, each
purporting to have a novel technical solutions. Ethereum is working on scaling up its technology too. But
so far, no clear winner has broken through.
That sluggishness also gave an opening to corporate blockchains. Even as cryptography geeks plotted to
use blockchains to topple, or at least bypass, big business, the big guys began their own experiments
with blockchains. Many corporate experiments involve "private" blockchains that run on servers within a
single company and selected partners. In contrast, anyone can run bitcoin or Ethereum software on
their computer and view all of the transactions recorded on the networks’ respective blockchains. But
big companies prefer to keep their data in the hands of a few employees, partners, and regulators.
Private blockchains are also substantially faster because they don’t require the intensive security
protocols used by Bitcoin and Ethereum. Tech firms like IBM and Intel offer private blockchains to
companies interested in things like supply chain tracking.
Recently, there’s also been renewed interest in using private blockchains to fulfill its initial use case:
buying things. While the dream of using Bitcoin as a medium of exchange has largely died out, due to
high transaction costs and extreme volatility, some have been interested in using private blockchains to
support “stablecoins”---cryptocurrencies pegged to real-world assets. JP Morgan recently announced
Quorum, its private blockchain, would start supporting such a coin. And then, in June, Facebook
announced Libra.
The Future of Blockchain
Despite the blockchain hype---and many experiments---there’s still no "killer app" for the technology
beyond speculation and (maybe) payments. Blockchain proponents admit that it could take a while for
the technology to catch on. After all, the internet's foundational technologies were created in the 1960s,
but it took decades for the internet to become ubiquitous.
That said, projects like Facebook’s Libra, which is supposed to launch in 2020, indicate the technology is
here to stay, but perhaps not in the form its early champions imagined. Libra is designed to enable users
to make payments, with a “stablecoin” that will be backed by a number of real-world assets. The idea is
to initially support things like cross-border payments and in-app purchases. But it could also be the
starting point for building out all sorts of blockchain-based applications. For example, Facebook says it’s
interested in exploring things like digital identity tied to the Libra blockchain. At some point, you might
use that identity to log in to apps, open bank accounts, apply for jobs, or prove that your emails or
social-media messages are really from you.
Those services could also be built on one of the original “public” blockchains, which continue to evolve.
Ethereum is currently trying to move from the slow, energy-intensive security scheme it has historically
been to a sleeker approach that could make the platform more useful. Bitcoin has the Lightning
Network, an experimental technology that enables cheaper payments by cutting down on some of the
intensive computations. Even Facebook has promised to begin moving Libra toward a truly decentralized
model within the next five years, pending technological breakthroughs.
Advocates are particularly excited about the possibility of building other financial services directly on the
blockchain, an area known as “decentralized finance,” or DeFi. Smart contracts could be used to issue
peer-to-peer loans, for example, without an overseeing authority, or even handle more complicated
applications like insurance. Some believe blockchains can also help automate many tasks now handled
by lawyers or other professionals. For example, your will might be stored in a blockchain. Or perhaps
your will could be a smart contract that will automatically dole out your money to your heirs. Or maybe
blockchains will replace notaries.
Bitcoin proved that it’s possible to build an online service that operates outside the control of any one
company or organization. The task for blockchain advocates now is proving that that’s actually a good
thing.
Learn More
The Ambitious Plan Behind Facebook's Cryptocurrency, Libra Facebook has designed a blockchain and
cryptocurrency that it won't fully control, but that will uniquely benefit Facebook.
New to Blockchain: Turning In-Game Virtual Goods into Assets Companies like Forte and Animoca want
to use blockchain technology to allow players to trade skins and other in-app purchases.
I Sold My Data for Crypto. Here's How Much I Made How I became my own data broker on the
blockchain—and sold my digital soul in the process.
The Decentralized Internet Is Here, With Some Glitches Blockchain-based applications aren't vaporware:
you can use them today. But they're often buggy, counter-intuitive, and risky. Hey, early adoption
always comes with a cost.
A $50 Million Hack Just Showed That the DAO Was All Too Human The DAO heist didn’t just show how
human error can undermine automatic systems. The schism it caused in the Ethereum community
shows how hard it is to remove messy human politics from software.
The Dark Web’s Favorite Currency Is Less Untraceable Than It Seems Bitcoin is encrypted, but that
doesn’t mean it’s anonymous. Monero is one of several blockchain-based currencies trying to build a
more private alternative, but don't count on being totally anonymous. Yet.
Why Wall Street Is Embracing the Blockchain—Its Biggest Threat It may seem weird that financial
institutions are experimenting with blockchain applications when part of the idea of blockchains is to
make these companies obsolete. But it turns out that blockchains---or something like them---could make
life easier for Wall Street.
An AI Hedge Fund Created a New Currency to Make Wall Street Work Like Open Source Traditionally, a
hedge fund’s trading methods are a closely guarded secret. But the hedge fund Numerai is using a new
cryptocurrency to encourage data scientists to work together to build algorithms that make the fund
more valuable.
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This guide was last updated on July 7, 2019.
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HOMEPAGE
What Is Blockchain? The ‘Transformative’ Technology Behind Bitcoin, Explained
A photo to accompany a story about blockchain
For all you’ve probably heard about Bitcoin, Dogecoin, and other cryptocurrencies lately, many financial
experts say it’s the technology behind crypto you should really be paying attention to.
“The underlying technology that most cryptocurrencies rely on — which is blockchain — is a

transformative technology,” says Lule Demmissie, president of Ally Invest. “And cryptocurrency just
happens to be one of those transformations.”
Some believe blockchain technology has the potential to change nearly every facet of our lives, far
beyond crypto’s impact on our financial portfolios. Dr. Richard Smith, executive director of the
Foundation for the Study of Cycles, a nonprofit organization dedicated to studying recurring patterns
throughout economies and cultures, calls it a “revolution.”
Even crypto skeptics see the value in blockchain technology. The real jewel is blockchain, says Chris
Chen, CFP of Insight Financial Strategists in Newton, Massachusetts. He believes blockchain is likely to
have a lot more staying power than popular cryptocurrencies like Bitcoin, which he calls a flash in the
pan. “Blockchain will continue to change the way that we do things.”
That all sounds great, but what exactly does it mean? Here’s what you need to know about blockchain,
and what a blockchain revolution might look like.
What Is Blockchain?
Think of a blockchain as a novel, digital form of record-keeping.
Blockchain is the underlying technology that many cryptocurrencies — like Bitcoin and Ethereum —
operate on, but its unique way of securely recording and transferring information has broader
applications outside of cryptocurrency.
A blockchain is a type of distributed ledger. Distributed ledger technology (DLT) allows record keeping
across multiple computers, known as “nodes.” Any user of the blockchain can be a node, but it takes a
lot of computer power to operate. Nodes verify, approve, and store data within the ledger. This is
different from traditional record-keeping methods which store data in a central place, such as a
computer server.
A blockchain organizes information added to the ledger into blocks, or groups of data. Each block can
only hold a certain amount of information, so new blocks are continually added to the ledger, forming a
chain.
Each block has its own unique identifier, a cryptographic “hash.” The hash not only protects the
information within the block from anyone without the required code, but also protects the block’s place
along the chain by identifying the block that came before it.
The cryptographic hash is “a set of numbers and letters that can be up to 64 digits long,” says Vikas
Agarwal, a partner in PwC’s Financial Services Advisory Practice. “That’s the unique code that allows the
puzzle pieces to fit together.”
Once information is added to the blockchain and encrypted with a hash, it’s permanent and
unchangeable. Each node has its own record of the full timeline of data along the blockchain, going back
to its start. If someone tampered with or hacked into one computer and manipulated the data for their
own gain, it wouldn’t alter the information stored by other nodes. The altered record can be easily
distinguished and corrected, since it doesn’t match the majority.
“The way that the system works, it’s almost impossible for someone to replicate the computing power
that happens on the back end to reverse engineer it, and somehow figure out what all those hashes
are,” Agarwal says.
How it Works
Here’s an example of how blockchain is used to verify and record Bitcoin transactions.
A consumer buys Bitcoin.
The transaction data is sent across Bitcoin’s decentralized network of nodes.
Nodes validate the transaction.
After approval, the transaction is grouped with other transactions to form a block, which is added to an
ever-growing chain of transactions.
The completed block is encrypted, and the transaction record is permanent; it cannot be removed or
altered on the blockchain.
Bitcoin’s blockchain is public, which means anyone who owns Bitcoin can view the transaction record.
While it can be difficult to trace the identity behind an account, the record shows which accounts are
transacting on the blockchain. Public blockchains also allow any user with the required computer power
to participate in approving and recording transactions onto the blockchain as a node.
But not all blockchains are public. Blockchains can be designed as private ledgers, so an owner is able to
limit who can make changes or additions to the blockchain. While the pool of participants may be
smaller on a private blockchain, it’s still decentralized among those who participate. Private blockchains
maintain the security of any data stored within the database using the same encryption methods.
The idea of a secure, decentralized permanent record of information has drawn interest across a
number of industries, and potentially holds solutions for many security concerns, record-keeping
processes, and data ownership issues we face today.
A Blockchain-Based Future
Blockchain gives us the technology to move information securely, Agarwal says, and have nearly
complete certainty in knowing the authenticity of any piece of information you want to protect.
Consider, for example, stories that have circulated in recent weeks of meme subjects and celebrities
who cashed in on digital property by selling NFTs (non-fungible tokens).
Because the underlying blockchain record is immutable, NFTs allow sellers to verify a digital asset’s
authenticity. When you buy an NFT, that transaction is added to the blockchain ledger, and becomes a
verifiable record of ownership. For those who want the ability to verify a digital work’s authenticity,
blockchain helps value digital art and collectibles similarly to their physical counterparts. In theory, this
leads to creators maintaining value through things earning royalties on copies made of digital art.
“That might seem confusing to the rest of us who don’t value those things,” Smith says. “But what it’s
really demonstrating is that you can have a digital economy with digital property rights.” It gives you the
ability to uniquely say ‘I own and control this piece of the digital economy,’ he says.
For many of us, one of the most impactful use-cases of blockchain technology may be protecting and
securely transferring personal data.
Imagine if your banking information was stored on a blockchain. When you open an account with a new
financial institution, or transfer information between institutions, a blockchain ledger could help quickly
and securely ensure the transfer or new account is accurate and legitimate using your already-stored
information. “That has the ability to reduce a lot of costs, a lot of overhead, and also become a good
way to reduce fraud,” Agarwal says.
He predicts blockchain technology has potential across nearly every industry, “because every industry
has some type of information that they’re trying to exchange in a very secure way.” An election run on
blockchain technology could benefit from a voting record that gets locked in and cannot be altered after
the fact. Businesses could maintain more accurate inventory records using blockchain. Blockchain could
even help consumers make more informed purchasing decisions with better transparency around
product supply chains. The technology may help food suppliers more efficiently trace recalled products,
or allow consumers to avoid goods created using exploited labor practices.
Uses like this illustrate blockchain’s appeal not only for security, but also what Chen calls the integrity of
information. “Blockchain has the potential to give people more security and assurance around that,”
Agarwal says.
Investing in the Future
Businesses and governments around the world are continuing to test and implement blockchain
technology, but none of this will happen overnight. If we ever reach a point where government currency
is blockchain-based or medical records are converted to a blockchain, it won’t be anytime soon.
In the meantime, you can bet on the power of blockchain by adding a blockchain-based cryptocurrency
like Bitcoin to your portfolio, though that’s not the only way to put your dollars behind the technology.
You can also adjust more traditional investments so they’re blockchain-forward. For example, look into
whether your ETFs or mutual funds include companies that are developing blockchain technologies or
beginning to use blockchain in their business operations.
There are even ETFs wholly made up of these types of companies, known as blockchain ETFs. One
example, launched in 2018, is the Siren Nasdaq Blockchain Economy Index (BLCN), which has outpaced
the S&P 500’s overall return both year-over-year and on a three-year average. These funds don’t put any
of your money in crypto specifically; instead, they invest in select company stocks — ranging from long-
established businesses like IBM to lesser-known startups like Galaxy Digital.
While it still doesn’t guarantee a return, this can be a more conservative alternative to putting your
money into the notoriously volatile cryptocurrency market directly.
Chen compares the difference between speculating in cryptocurrencies directly and investing in
blockchain companies to the California gold rush of two centuries ago. “Lots of people rushed in there to
dig for gold, and most of them never made any money,” he says. “The folks who made the money are
those who sold the shovels. The companies that are supporting the development of blockchain are the
shovel sellers.”
Kendall Little - Staff Writer

Kendall Little is a journalist covering personal finance for NextAdvisor based in New York. Previously, she
was a personal finance writer at Bankrate, helping consumers shop smartly, save money, and set
financial goals. She also served as credit cards reporter at Bankrate, where she reported on industry
news and consumer advice for credit building, debt payoff, and rewards. Kendall is a graduate of the
Grady College of Journalism and Mass Communication at the University of Georgia. Email her at
kendall@nextadvisor.com.
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Technology
The Truth About Blockchain
by Marco Iansiti and Karim R. Lakhani
From the January–February 2017 Issue
Guedda Hassan Mohamed
Contracts, transactions, and the records of them are among the defining structures in our economic,
legal, and political systems. They protect assets and set organizational boundaries. They establish and
verify identities and chronicle events. They govern interactions among nations, organizations,
communities, and individuals. They guide managerial and social action. And yet these critical tools and
the bureaucracies formed to manage them have not kept up with the economy’s digital transformation.
They’re like a rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate
and maintain administrative control has to change.
Blockchain promises to solve this problem. The technology at the heart of bitcoin and other virtual
currencies, blockchain is an open, distributed ledger that can record transactions between two parties
efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger
transactions automatically. (See the sidebar “How Blockchain Works.”)
With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in
transparent, shared databases, where they are protected from deletion, tampering, and revision. In this
world every agreement, every process, every task, and every payment would have a digital record and
signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers,
and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would
freely transact and interact with one another with little friction. This is the immense potential of
blockchain.
Indeed, virtually everyone has heard the claim that blockchain will revolutionize business and redefine
companies and economies. Although we share the enthusiasm for its potential, we worry about the
hype. It’s not just security issues (such as the 2014 collapse of one bitcoin exchange and the more recent
hacks of others) that concern us. Our experience studying technological innovation tells us that if there’s
to be a blockchain revolution, many barriers—technological, governance, organizational, and even
societal—will have to fall. It would be a mistake to rush headlong into blockchain innovation without
understanding how it is likely to take hold.
True blockchain-led transformation of business and government, we believe, is still many years away.
That’s because blockchain is not a “disruptive” technology, which can attack a traditional business model
with a lower-cost solution and overtake incumbent firms quickly. Blockchain is a foundational
technology: It has the potential to create new foundations for our economic and social systems. But
while the impact will be enormous, it will take decades for blockchain to seep into our economic and
social infrastructure. The process of adoption will be gradual and steady, not sudden, as waves of
technological and institutional change gain momentum. That insight and its strategic implications are
what we’ll explore in this article.
Patterns of Technology Adoption
Before jumping into blockchain strategy and investment, let’s reflect on what we know about
technology adoption and, in particular, the transformation process typical of other foundational
technologies. One of the most relevant examples is distributed computer networking technology, seen
in the adoption of TCP/IP (transmission control protocol/internet protocol), which laid the groundwork
for the development of the internet.
Introduced in 1972, TCP/IP first gained traction in a single-use case: as the basis for e-mail among the
researchers on ARPAnet, the U.S. Department of Defense precursor to the commercial internet. Before
TCP/IP, telecommunications architecture was based on “circuit switching,” in which connections
between two parties or machines had to be preestablished and sustained throughout an exchange. To
ensure that any two nodes could communicate, telecom service providers and equipment
manufacturers had invested billions in building dedicated lines.
TCP/IP turned that model on its head. The new protocol transmitted information by digitizing it and
breaking it up into very small packets, each including address information. Once released into the
network, the packets could take any route to the recipient. Smart sending and receiving nodes at the
network’s edges could disassemble and reassemble the packets and interpret the encoded data. There
was no need for dedicated private lines or massive infrastructure. TCP/IP created an open, shared public
network without any central authority or party responsible for its maintenance and improvement.
Traditional telecommunications and computing sectors looked on TCP/IP with skepticism. Few imagined
that robust data, messaging, voice, and video connections could be established on the new architecture
or that the associated system could be secure and scale up. But during the late 1980s and 1990s, a
growing number of firms, such as Sun, NeXT, Hewlett-Packard, and Silicon Graphics, used TCP/IP, in part
to create localized private networks within organizations. To do so, they developed building blocks and
tools that broadened its use beyond e-mail, gradually replacing more-traditional local network
technologies and standards. As organizations adopted these building blocks and tools, they saw
dramatic gains in productivity.
TCP/IP burst into broad public use with the advent of the World Wide Web in the mid-1990s. New
technology companies quickly emerged to provide the “plumbing”—the hardware, software, and
services needed to connect to the now-public network and exchange information. Netscape
commercialized browsers, web servers, and other tools and components that aided the development
and adoption of internet services and applications. Sun drove the development of Java, the application-
programming language. As information on the web grew exponentially, Infoseek, Excite, AltaVista, and
Yahoo were born to guide users around it.
Once this basic infrastructure gained critical mass, a new generation of companies took advantage of
low-cost connectivity by creating internet services that were compelling substitutes for existing
businesses. CNET moved news online. Amazon offered more books for sale than any bookshop. Priceline
and Expedia made it easier to buy airline tickets and brought unprecedented transparency to the
process. The ability of these newcomers to get extensive reach at relatively low cost put significant
pressure on traditional businesses like newspapers and brick-and-mortar retailers.
Relying on broad internet connectivity, the next wave of companies created novel, transformative
applications that fundamentally changed the way businesses created and captured value. These
companies were built on a new peer-to-peer architecture and generated value by coordinating
distributed networks of users. Think of how eBay changed online retail through auctions, Napster
changed the music industry, Skype changed telecommunications, and Google, which exploited user-
generated links to provide more relevant results, changed web search.
Companies are already using blockchain to track items through complex supply chains.
Ultimately, it took more than 30 years for TCP/IP to move through all the phases—single use, localized
use, substitution, and transformation—and reshape the economy. Today more than half the world’s
most valuable public companies have internet-driven, platform-based business models. The very
foundations of our economy have changed. Physical scale and unique intellectual property no longer
confer unbeatable advantages; increasingly, the economic leaders are enterprises that act as
“keystones,” proactively organizing, influencing, and coordinating widespread networks of communities,
users, and organizations.
The New Architecture
Blockchain—a peer-to-peer network that sits on top of the internet—was introduced in October 2008 as
part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing
currency, transferring ownership, and confirming transactions. Bitcoin is the first application of
blockchain technology.
The parallels between blockchain and TCP/IP are clear. Just as e-mail enabled bilateral messaging,
bitcoin enables bilateral financial transactions. The development and maintenance of blockchain is
open, distributed, and shared—just like TCP/IP’s. A team of volunteers around the world maintains the
core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small
community.
TCP/IP unlocked new economic value by dramatically lowering the cost of connections. Similarly,
blockchain could dramatically reduce the cost of transactions. It has the potential to become the system
of record for all transactions. If that happens, the economy will once again undergo a radical shift, as
new, blockchain-based sources of influence and control emerge.
Consider how business works now. Keeping ongoing records of transactions is a core function of any
business. Those records track past actions and performance and guide planning for the future. They
provide a view not only of how the organization works internally but also of the organization’s outside
relationships. Every organization keeps its own records, and they’re private. Many organizations have no
master ledger of all their activities; instead records are distributed across internal units and functions.
The problem is, reconciling transactions across individual and private ledgers takes a lot of time and is
prone to error.
For example, a typical stock transaction can be executed within microseconds, often without human
intervention. However, the settlement—the ownership transfer of the stock—can take as long as a
week. That’s because the parties have no access to each other’s ledgers and can’t automatically verify
that the assets are in fact owned and can be transferred. Instead a series of intermediaries act as
guarantors of assets as the record of the transaction traverses organizations and the ledgers are
individually updated.
In a blockchain system, the ledger is replicated in a large number of identical databases, each hosted
and maintained by an interested party. When changes are entered in one copy, all the other copies are
simultaneously updated. So as transactions occur, records of the value and assets exchanged are
permanently entered in all ledgers. There is no need for third-party intermediaries to verify or transfer
ownership. If a stock transaction took place on a blockchain-based system, it would be settled within
seconds, securely and verifiably. (The infamous hacks that have hit bitcoin exchanges exposed
weaknesses not in the blockchain itself but in separate systems linked to parties using the blockchain.)
A Framework for Blockchain Adoption
If bitcoin is like early e-mail, is blockchain decades from reaching its full potential? In our view the
answer is a qualified yes. We can’t predict exactly how many years the transformation will take, but we
can guess which kinds of applications will gain traction first and how blockchain’s broad acceptance will
eventually come about.
In our analysis, history suggests that two dimensions affect how a foundational technology and its
business use cases evolve. The first is novelty—the degree to which an application is new to the world.
The more novel it is, the more effort will be required to ensure that users understand what problems it
solves. The second dimension is complexity, represented by the level of ecosystem coordination
involved—the number and diversity of parties that need to work together to produce value with the
technology. For example, a social network with just one member is of little use; a social network is
worthwhile only when many of your own connections have signed on to it. Other users of the
application must be brought on board to generate value for all participants. The same will be true for
many blockchain applications. And, as the scale and impact of those applications increase, their
adoption will require significant institutional change.
We’ve developed a framework that maps innovations against these two contextual dimensions, dividing
them into quadrants. (See the exhibit “How Foundational Technologies Take Hold.”) Each quadrant
represents a stage of technology development. Identifying which one a blockchain innovation falls into
will help executives understand the types of challenges it presents, the level of collaboration and
consensus it needs, and the legislative and regulatory efforts it will require. The map will also suggest
what kind of processes and infrastructure must be established to facilitate the innovation’s adoption.
Managers can use it to assess the state of blockchain development in any industry, as well as to evaluate
strategic investments in their own blockchain capabilities.
Single use.
In the first quadrant are low-novelty and low-coordination applications that create better, less costly,
highly focused solutions. E-mail, a cheap alternative to phone calls, faxes, and snail mail, was a single-
use application for TCP/IP (even though its value rose with the number of users). Bitcoin, too, falls into
this quadrant. Even in its early days, bitcoin offered immediate value to the few people who used it
simply as an alternative payment method. (You can think of it as a complex e-mail that transfers not just
information but also actual value.) At the end of 2016 the value of bitcoin transactions was expected to
hit $92 billion. That’s still a rounding error compared with the $411 trillion in total global payments, but
bitcoin is growing fast and increasingly important in contexts such as instant payments and foreign
currency and asset trading, where the present financial system has limitations.
Localization.
The second quadrant comprises innovations that are relatively high in novelty but need only a limited
number of users to create immediate value, so it’s still relatively easy to promote their adoption. If
blockchain follows the path network technologies took in business, we can expect blockchain
innovations to build on single-use applications to create local private networks on which multiple
organizations are connected through a distributed ledger.
Much of the initial private blockchain-based development is taking place in the financial services sector,
often within small networks of firms, so the coordination requirements are relatively modest. Nasdaq is
working with Chain.com, one of many blockchain infrastructure providers, to offer technology for
processing and validating financial transactions. Bank of America, JPMorgan, the New York Stock
Exchange, Fidelity Investments, and Standard Chartered are testing blockchain technology as a
replacement for paper-based and manual transaction processing in such areas as trade finance, foreign
exchange, cross-border settlement, and securities settlement. The Bank of Canada is testing a digital
currency called CAD-coin for interbank transfers. We anticipate a proliferation of private blockchains
that serve specific purposes for various industries.
Substitution.
The third quadrant contains applications that are relatively low in novelty because they build on existing
single-use and localized applications, but are high in coordination needs because they involve broader
and increasingly public uses. These innovations aim to replace entire ways of doing business. They face
high barriers to adoption, however; not only do they require more coordination but the processes they
hope to replace may be full-blown and deeply embedded within organizations and institutions.
Examples of substitutes include cryptocurrencies—new, fully formed currency systems that have grown
out of the simple bitcoin payment technology. The critical difference is that a cryptocurrency requires
every party that does monetary transactions to adopt it, challenging governments and institutions that
have long handled and overseen such transactions. Consumers also have to change their behavior and
understand how to implement the new functional capability of the cryptocurrency.
A recent experiment at MIT highlights the challenges ahead for digital currency systems. In 2014 the MIT
Bitcoin Club provided each of MIT’s 4,494 undergraduates with $100 in bitcoin. Interestingly, 30% of the
students did not even sign up for the free money, and 20% of the sign-ups converted the bitcoin to cash
within a few weeks. Even the technically savvy had a tough time understanding how or where to use
bitcoin.
One of the most ambitious substitute blockchain applications is Stellar, a nonprofit that aims to bring
affordable financial services, including banking, micropayments, and remittances, to people who’ve
never had access to them. Stellar offers its own virtual currency, lumens, and also allows users to retain
on its system a range of assets, including other currencies, telephone minutes, and data credits. Stellar
initially focused on Africa, particularly Nigeria, the largest economy there. It has seen significant
adoption among its target population and proved its cost-effectiveness. But its future is by no means
certain, because the ecosystem coordination challenges are high. Although grassroots adoption has
demonstrated the viability of Stellar, to become a banking standard, it will need to influence
government policy and persuade central banks and large organizations to use it. That could take years of
concerted effort.
Transformation.
Into the last quadrant fall completely novel applications that, if successful, could change the very nature
of economic, social, and political systems. They involve coordinating the activity of many actors and
gaining institutional agreement on standards and processes. Their adoption will require major social,
legal, and political change.
“Smart contracts” may be the most transformative blockchain application at the moment. These
automate payments and the transfer of currency or other assets as negotiated conditions are met. For
example, a smart contract might send a payment to a supplier as soon as a shipment is delivered. A firm
could signal via blockchain that a particular good has been received—or the product could have GPS
functionality, which would automatically log a location update that, in turn, triggered a payment. We’ve
already seen a few early experiments with such self-executing contracts in the areas of venture funding,
banking, and digital rights management.
The implications are fascinating. Firms are built on contracts, from incorporation to buyer-supplier
relationships to employee relations. If contracts are automated, then what will happen to traditional
firm structures, processes, and intermediaries like lawyers and accountants? And what about managers?
Their roles would all radically change. Before we get too excited here, though, let’s remember that we
are decades away from the widespread adoption of smart contracts. They cannot be effective, for
instance, without institutional buy-in. A tremendous degree of coordination and clarity on how smart
contracts are designed, verified, implemented, and enforced will be required. We believe the
institutions responsible for those daunting tasks will take a long time to evolve. And the technology
challenges—especially security—are daunting.
Guiding Your Approach to Blockchain Investment
How should executives think about blockchain for their own organizations? Our framework can help
companies identify the right opportunities.
For most, the easiest place to start is single-use applications, which minimize risk because they aren’t
new and involve little coordination with third parties. One strategy is to add bitcoin as a payment
mechanism. The infrastructure and market for bitcoin are already well developed, and adopting the
virtual currency will force a variety of functions, including IT, finance, accounting, sales, and marketing,
to build blockchain capabilities. Another low-risk approach is to use blockchain internally as a database
for applications like managing physical and digital assets, recording internal transactions, and verifying
identities. This may be an especially useful solution for companies struggling to reconcile multiple
internal databases. Testing out single-use applications will help organizations develop the skills they
need for more-advanced applications. And thanks to the emergence of cloud-based blockchain services
from both start-ups and large platforms like Amazon and Microsoft, experimentation is getting easier all
the time.
Localized applications are a natural next step for companies. We’re seeing a lot of investment in private
blockchain networks right now, and the projects involved seem poised for real short-term impact.
Financial services companies, for example, are finding that the private blockchain networks they’ve set
up with a limited number of trusted counterparties can significantly reduce transaction costs.
Organizations can also tackle specific problems in transactions across boundaries with localized
applications. Companies are already using blockchain to track items through complex supply chains, for
instance. This is happening in the diamond industry, where gems are being traced from mines to
consumers. The technology for such experiments is now available off-the-shelf.
Developing substitute applications requires careful planning, since existing solutions may be difficult to
dislodge. One way to go may be to focus on replacements that won’t require end users to change their
behavior much but present alternatives to expensive or unattractive solutions. To get traction,
substitutes must deliver functionality as good as a traditional solution’s and must be easy for the
ecosystem to absorb and adopt. First Data’s foray into blockchain-based gift cards is a good example of a
well-considered substitute. Retailers that offer them to consumers can dramatically lower costs per
transaction and enhance security by using blockchain to track the flows of currency within accounts—
without relying on external payment processors. These new gift cards even allow transfers of balances
and transaction capability between merchants via the common ledger.
Blockchain could slash the cost of transactions and reshape the economy.
Transformative applications are still far away. But it makes sense to evaluate their possibilities now and
invest in developing technology that can enable them. They will be most powerful when tied to a new
business model in which the logic of value creation and capture departs from existing approaches. Such
business models are hard to adopt but can unlock future growth for companies.
Consider how law firms will have to change to make smart contracts viable. They’ll need to develop new
expertise in software and blockchain programming. They’ll probably also have to rethink their hourly
payment model and entertain the idea of charging transaction or hosting fees for contracts, to name just
two possible approaches. Whatever tack they take, executives must be sure they understand and have
tested the business model implications before making any switch.
Transformative scenarios will take off last, but they will also deliver enormous value. Two areas where
they could have a profound impact: large-scale public identity systems for such functions as passport
control, and algorithm-driven decision making in the prevention of money laundering and in complex
financial transactions that involve many parties. We expect these applications won’t reach broad
adoption and critical mass for at least another decade and probably more.
Transformative applications will also give rise to new platform-level players that will coordinate and
govern the new ecosystems. These will be the Googles and Facebooks of the next generation. It will
require patience to realize such opportunities. Though it may be premature to start making significant
investments in them now, developing the required foundations for them—tools and standards—is still
worthwhile.
CONCLUSION
In addition to providing a good template for blockchain’s adoption, TCP/IP has most likely smoothed the
way for it. TCP/IP has become ubiquitous, and blockchain applications are being built on top of the
digital data, communication, and computation infrastructure, which lowers the cost of experimentation
and will allow new use cases to emerge rapidly.
With our framework, executives can figure out where to start building their organizational capabilities
for blockchain today. They need to ensure that their staffs learn about blockchain, to develop company-
specific applications across the quadrants we’ve identified, and to invest in blockchain infrastructure.
But given the time horizons, barriers to adoption, and sheer complexity involved in getting to TCP/IP
levels of acceptance, executives should think carefully about the risks involved in experimenting with
blockchain. Clearly, starting small is a good way to develop the know-how to think bigger. But the level
of investment should depend on the context of the company and the industry. Financial services
companies are already well down the road to blockchain adoption. Manufacturing is not.
No matter what the context, there’s a strong possibility that blockchain will affect your business. The
very big question is when.
How Blockchain Works
Here are five basic principles underlying the technology.

1. Distributed Database
Each party on a blockchain has access to the entire database and its complete history. No single party
controls the data or the information. Every party can verify the records of its transaction partners
directly, without an intermediary.
2. Peer-to-Peer Transmission
Communication occurs directly between peers instead of through a central node. Each node stores and
forwards information to all other nodes.
3. Transparency with Pseudonymity
Every transaction and its associated value are visible to anyone with access to the system. Each node, or
user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can
choose to remain anonymous or provide proof of their identity to others. Transactions occur between
blockchain addresses.
4. Irreversibility of Records
Once a transaction is entered in the database and the accounts are updated, the records cannot be
altered, because they’re linked to every transaction record that came before them (hence the term
“chain”). Various computational algorithms and approaches are deployed to ensure that the recording
on the database is permanent, chronologically ordered, and available to all others on the network.
5. Computational Logic
The digital nature of the ledger means that blockchain transactions can be tied to computational logic
and in essence programmed. So users can set up algorithms and rules that automatically trigger
transactions between nodes.
How Foundational Technologies Take Hold
The adoption of foundational technologies typically happens in four phases. Each phase is defined by the
novelty of the applications and the complexity of the coordination efforts needed to make them
workable. Applications low in novelty and complexity gain acceptance first. Applications high in novelty
and complexity take decades to evolve but can transform the economy. TCP/IP technology, introduced
on ARPAnet in 1972, has already reached the transformation phase, but blockchain applications (in red)
are in their early days.
Further Reading
To learn more about technology adoption, go to these articles on HBR.org:
“Digital Ubiquity: How Connections, Sensors, and Data Are Revolutionizing Business”
Marco Iansiti and Karim R. Lakhani
“Strategy as Ecology”
Marco Iansiti and Roy Levien
“Right Tech, Wrong Time”
Ron Adner and Rahul Kapoor
Marco Iansiti is the David Sarnoff Professor of Business Administration at Harvard Business School,
where he heads the Technology and Operations Management Unit and the Digital Initiative. He has
advised many companies in the technology sector, including Microsoft, Facebook, and Amazon. He is a
coauthor (with Karim Lakhani) of the book Competing in the Age of AI (Harvard Business Review Press,
2020).
Karim R. Lakhani is the Charles Edward Wilson Professor of Business Administration and the Dorothy and
Michael Hintze Fellow at Harvard Business School and the founder and codirector of the Laboratory for
Innovation Science at Harvard. He is a coauthor (with Marco Iansiti) of the book Competing in the Age of
AI (Harvard Business Review Press, 2020).
Read more on Technology
Partner Center
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Crypto Basics
Crypto Basics
What Is a Blockchain?
By
Kevin Dwyer
Published on:
June 17, 2021
Let's go back to basics — what exactly is blockchain technology?
What Is a Blockchain?
Table of Contents
How Is Information Stored in the Blockchain?
What Makes Blockchain Technology Revolutionary?
What Is the Role of Nodes in a Blockchain?
What Is the Role for Miners in a Blockchain?
How Many Transactions Can Be Stored in Each Block?

How Are NFTs Stored on a Blockchain?
What Are The Biggest and Most Valuable Blockchains?
How Can Blockchains Speak to Each Other?
Why Are Blockchains Usually Open-Source?
What Are Uses for Blockchain Outside of Cryptocurrency?
Ever since its invention, blockchain technology has been the center of attention in the world of
innovation. Many investors and other blockchain developers are now keen on understanding what this
blockchain technology is. For people in the financial sector, they would like to know how it could be
used in different use cases. This article will give you a better understanding of what blockchains are and
how they could be applied to numerous industries.
To put it simply, a blockchain is a public, decentralized, record-keeping database used for all
cryptocurrency transactions. Everytime you make a purchase with a cryptocurrency, the transaction is
recorded and then made available to the public. The information about the transaction gets stored into
a “block” and then added to the global network of blocks, known as the “blockchain.”
Most cryptocurrencies have their own blockchain (and some cryptocurrencies are not blockchain-based,
like IOTA’s Tangle, but that’s more rare) — you can check out CoinMarketCap’s blockchain explorers
here for Bitcoin, Ethereum, Litecoin and Binance Coin.
Blockchain Definition
Blockchains are made up of a series of individual blocks. Each block contains information about
transactions conducted within a given time period. They also contain a unique identifier to differentiate
them from every other block in the chain.
‍
Blockchain technology is the innovative software behind cryptocurrency, including Bitcoin. It is a digital
ledger of transactions that uses computers to verify and secure transactions. Blockchain technology has
been recognized as one of the most disruptive technologies since the internet itself.
Blockchain is a rapidly growing technology that deals with transactions of digital goods, online transfers
or payments. Conceived as a decentralized ledger for the digital currency Bitcoin, blockchain technology
is now used to record and verify all manner of transactions on every continent, including the transfer of
assets like real estate or securities, as well as votes in elections from football tournaments to corporate
shareholder meetings. If you've ever used an app on your phone to trade Bitcoin or another
cryptocurrency, you've already seen one application.
Blockchain is causing a revolution in the financial services industry. Every day, more and more banks,
payment providers, and other financial services companies embrace blockchain technology because it
drastically reduces costs and improves security.
Blockchain has been described as the new internet, a foundation for potentially new technologies,
businesses and a way of organizing people. While there are a lot of complicated discussions about what
blockchain can and cannot do, the best way to understand it is to start using it.
‍
How Is Information Stored in the Blockchain?
Each block is a digital record that contains the time of purchase, purchase amount and the two parties
involved in the transaction. The transaction can be traced by a “hash,” a unique code made of numbers
and letters that is generated every time a purchase is made with cryptocurrency. The “hash” can be
thought of as the DNA strand of a transaction, and cannot be altered once the transaction has been
completed and sent to the blockchain. Each new transaction is added to the end of the blockchain. As
more and more people make crypto transactions, the “height” of the blockchain grows.
Every transaction must be verified before it gets added to the ledger. Once a transaction is made,
consensus mechanisms (such as “proof of work” or “proof of stake”) are activated to confirm that the
transaction is legitimate and does not already exist in the system. These consensus mechanisms
facilitate social trust and help ensure that no payment is charged more than once. However, such
consensus protocols can delay the transaction time because they require sophisticated computational
power to achieve consensus.
Generally, blockchain transactions are fast; however, the speed of the transaction depends on several
factors, including the type of cryptocurrency used. For instance, some cryptocurrencies have faster
transaction rates (TPS) than others.
As an example, although most Bitcoin transactions can be completed in 10 minutes or less, some Bitcoin
transactions can take days to confirm. Such delays can occur when there is a high volume of transactions
and a decrease in hash rate. When a transaction is made over a blockchain, miners work to process the
“hash” and confirm the transaction into a respective “block.” Each “block” for Bitcoin is capped at 1MB,
which means it can get competitive to have your transaction included in a present “block.”
What Makes Blockchain Technology Revolutionary?
Blockchain technology cuts out the middleman in any transaction, creating an immutable record on its
ledger. Have you ever tried to buy something with your debit card, only to find out that the check you
deposited last week still hasn’t made it into your account? With blockchain, there is no middleman (like
a bank) that has control over your transactions — blockchain transactions are strictly between two
parties, or peer-to-peer.
Transactions made on the blockchain take place without the approval of traditional financial institutions.
Unlike the standard documentation that banks may require from its clients, anyone with an internet
connection can gain access to the blockchain, making blockchain a revolutionary and disruptive
movement.
Moreover, blockchain can be used to record information that would normally be censored by
governments. Blockchain was designed with a utopian “censorship-resistance” vision in mind, which
means that political movements in countries like Belarus can use blockchain technology to ensure that
their money can freely travel. There have also been instances in China where people have posted
sensitive documents on blockchain to maintain a permanent record of events that the media was not
allowed to cover.
The security of blockchain rests largely on the concept behind distributed ledger technology. A
blockchain is not stored in a single place; rather, its data is stored in nodes, computers and servers all
around the world. Due to the peer-to-peer nature of the blockchain, no centralized agency can own or
edit this information, providing for greater security, cooperation and trust. Hacking the entire blockchain
network would be nearly impossible. Though a hacker could potentially alter some aspects of the data,
there is no centralized system to attack.
Additionally, because the blockchain is organized chronologically and each “hash” contains information
on the “hash” that comes before it, the data stored in each “block” cannot easily be modified by hackers
or outside parties as it would quickly be “orphaned” as a fraudulent block. However, potential security
threats can arise if miners successfully monopolize the blockchain. In instances where miners gain a
majority and assert control of the “hash rate”, they can conduct a “51% attack” to disrupt and reverse
transactions.
CoinMarketCap Alexandria has a guide on how to keep your crypto safe here.
What Is the Role of Nodes in a Blockchain?
Nodes are the safe keepers of any blockchain and have a huge responsibility. Each node stores a
complete copy of the blockchain, providing a network of interconnected computers. Nodes themselves
are computers, laptops and servers that work in harmony to give consensus to decentralized ledgers.
They are responsible for blockchain infrastructure and constantly communicate to build the ledger with
totally accurate and agreed-upon information.
Nodes are foundational to the blockchain as they provide the decentralized ledger that makes it possible
to circumnavigate central power structures. Additionally, they are responsible for providing an access
point for any user to view the data within, creating a trustless, verifiable and tamper-resistant system of
transacting for all.
Since nodes are difficult to set up and maintain, node operators and owners are rewarded in
cryptocurrency for the part they play. When their node is used to authenticate and verify transactions,
they are rewarded a small piece of the network fee.
What Is the Role for Miners in a Blockchain?
Miners have a role that is different from nodes in the blockchain. Nodes are used to store complete
copies of the blockchain, but miners are responsible for validating blocks that are composed of a
number of transactions. Miners will pick up blocks from nodes for verification and begin using their
processing power to solve cryptographic hashes. These are randomly generated problems that require
solutions to secure the network and prevent things like double-spending.
Bitcoin and other crypto miners will often need a huge amount of processing power to verify blocks, and
they will need specialized hardware like ASICs (application-specific integrated circuits). In return for their
investment in mining equipment, blockchain miners are rewarded with cryptocurrency that comes from
the built-in transaction fees on the network as well as newly generated tokens.
Once miners have verified a block, it will be sent back to the nodes as a new block to be confirmed and
added officially to the distributed ledger that is the blockchain.
How Many Transactions Can Be Stored in Each Block?
The number of transactions on each block will vary greatly, but the average Bitcoin block comprises
around 2,800 transactions. It takes about 10 minutes for a block to be mined and verified on the Bitcoin
main chain. There can be more or fewer transactions included in each block on other blockchains, and
networks like the Litecoin network are much faster at creating new blocks — Litecoin comes in at only
2.5 minutes to Bitcoin’s 10.
Blockchains are continuously growing in overall storage size, and they are finding ways to improve the
speed and transaction times on the network. Networks like Ethereum are looking to different consensus
algorithms like proof-of-stake to decrease transaction times significantly.
How Are NFTs Stored on a Blockchain?
Non-fungible tokens (NFTs) are stored on the blockchain as unique digital assets (mostly the Ethereum
chain). Artists will commonly pay a third party such as OpenSea to submit their work for tokenization on
the Ethereum blockchain. The artist will pay Ethereum to the miners that will verify and tokenize the
new NFT. Having the NFT stored on the blockchain means that anyone will be able to see that the owner
is the only person with the original art piece. Unlike fungible tokens like the interchangeable ETH, NFTs
are stored as unique assets on the blockchain.
NFT purchasers can take their assets offline like cryptocurrencies and store them in hardware wallets
like Trezor or Ledger. They can also be stored in online wallets like MetaMask.
What Are The Biggest and Most Valuable Blockchains?
The biggest and most valuable blockchains belong to the most valuable cryptocurrencies, Bitcoin and
Ethereum. There are nearly 688,000 blocks currently mined on the Bitcoin blockchain and around 10
million blocks on the Ethereum blockchain (as of June 2021). The size of Bitcoin’s blockchain is currently
350 GB, and Ethereum’s is almost 830 GB in sync data size.
The overall coin market cap is used to establish cryptos in order of value. Bitcoin is still number one with
a current coin market cap of $728,214,030,841, and Ethereum is the second most valuable crypto and
network with $282,336,525,836.
How Can Blockchains Speak to Each Other?
There are many operations in place now to increase the interoperability between blockchains to
facilitate the free and easy flow of information. Pre-coded communication between blockchains can
remove the need for any central power when doing things like exchanging cryptocurrencies.
Decentralized exchanges have popped up for the express purpose of allowing users to exchange tokens
without having to go through a company like Coinbase or Kraken.
Blockchains can speak to each other by using “atomic swaps.” With atomic swaps, smart contracts take
the place of any contract between two parties facilitated by centralized companies. This means crypto
owners can trade peer-to-peer.
Other blockchains like Polkadot have made it their purpose to create better interoperability in the
blockchain ecosystem. They allow for transfers of any type of data or asset across blockchains.
Why Are Blockchains Usually Open-Source?
Blockchains are usually open-source because, by nature, they are a collaborative and decentralized
organization. For example, since there is no central company behind Bitcoin, it needs developers to
contribute to the network on a volunteer basis. However, developers are sometimes rewarded for their
efforts by sponsors from crypto organizations.
Blockchain’s open-source nature also allows for innovation in the form of decentralized applications
(DApps). The creation of new apps allows developers to quickly solve problems on the blockchain
related to the safety, efficiency and speed of the network. Having no central authority in the
development process is true to the trustless system of Bitcoin and other digital currencies.
Bitcoin and blockchain have become increasingly popular in part because they are decentralized and
democratized financial systems. They take business from centralized institutions and governments and
transfer it back to the public. Being open-source is in line with the overall purpose and values behind
blockchain.
What Are Uses for Blockchain Outside of Cryptocurrency?
When most people think about blockchain, their mind goes to cryptocurrency and decentralized finance.
Since blockchains usually require the decentralized support of nodes and mining, they most often
reward operators with a native crypto token. However, beyond the digital currency rewards, there are
incredible implications behind this new technology that could shake up a huge number of industries.
Supply Chains - Blockchain is hugely helpful in logistics and supply chains. It provides a better way to add
transparency and validation to shipping and supply networks.
Ownership and NFTs - Blockchain provides a new way to transfer ownership digitally. NFTs are tokenized
goods that can be either physical or digital. NFTs are transforming the music, video, sports, collectibles
and media industries.
Government - Governments are exploring new ways to use blockchain for things like central bank digital
currencies and storing public documents.
Social Media - Projects like Steem are looking to become the new medium of communication by
rewarding users in crypto for providing engaging content.
The Internet of Things (IoT) - Blockchains like Helium, Filament and IOTA are capitalizing on providing
connectivity and security to items like smart devices that need the internet.
This is by no means an all-inclusive list. There will be other uses as blockchain technology expands, and
many expect that blockchain will soon become an integral part of our lives. It is unknown which digital
currency will be most prominent in 10 years, but we know that blockchain technology is here to stay.
This article contains links to third-party websites or other content for information purposes only (“Third-
Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is
not responsible for the content of any Third-Party Site, including without limitation any link contained in
a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these
links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval
or recommendation by CoinMarketCap of the site or any association with its operators. This article is
intended to be used and must be used for informational purposes only. It is important to do your own
research and analysis before making any material decisions related to any of the products or services
described. This article is not intended as, and shall not be construed as, financial advice. The views and
opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those
of CoinMarketCap.
Author(s)
Kevin Dwyer
I'm a technical writer and journalist covering cryptocurrency and tech. I believe blockchain can build a
better world - I'm here to report on how we get there.
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2 min read 1 video 2 infographics
What is Blockchain?
Share:
A blockchain is a public ledger of information collected through a network that sits on top of the
internet. It is how this information is recorded that gives blockchain its groundbreaking potential.
Blockchain technology is not a company, nor is it an app, but rather an entirely new way of documenting
data on the internet. The technology can be used to develop blockchain applications, such as social
networks, messengers, games, exchanges, storage platforms, voting systems, prediction markets, online
shops and much more. In this sense, it is similar to the internet, which is why some have dubbed it “The
Internet 3.0”.
The information recorded on a blockchain can take on any form, whether it be denoting a transfer of
money, ownership, a transaction, someone's identity, an agreement between two parties, or even how
much electricity a lightbulb has used. However, to do so requires a confirmation from several of devices,
such as computers, on the network. Once an agreement, otherwise known as a consensus, is reached
between these devices to store something on a blockchain it is unquestionably there, it cannot be
disputed, removed or altered, without the knowledge and permission of those who made that record, as
well as the wider community.
What does immutable mean?
Pay attention
What is blockchain?
What is blockchain Zoom in

Why is it Called “Blockchain”?
Blockchain owes its name to how it works and the manner in which it stores data, namely that the
information is packaged into blocks, which link to form a chain with other blocks of similar information.
It is this act of linking blocks into a chain that makes the information stored on a blockchain so
trustworthy. Once the data is recorded in a block it cannot be altered without having to change every
block that came after it, making it impossible to do so without it being seen by the other participants on
the network.
Distributed ledgers have 3 key attributes:
Technical fact
Normally, each block contains the data it is recording, for example a transaction like 1 Lisk token being
sent from Alice to Bob, as well as timestamps of when that information was recorded. It will also include
a digital signature linked to the account that made the recording and a unique identifying link, in the
form of a hash (think of it as a digital fingerprint), to the previous block in the chain. It is this link that
makes it impossible for any of the information to be altered or for a block to be inserted between two
existing blocks. In order to do so all following blocks would need to be edited too. As a result, each block
strengthens the previous block and the security of the entire blockchain because it means more blocks
would need to be changed to tamper with any information.
When combined, all of these create an unquestionable storage of information, one that cannot be
disputed or declared to be untrue.
Why is it called blockchain?
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..
The Goals of Cryptocurrency, Blockchain
sudipn749 (47)in #steemit • 4 years ago
Crypto 1.JPG
****** Goals of cryptocurrency ******
Create easier and faster local and global (cross-border) financial and business transactions making the
fees of transactions practically NIL.
Eliminate the need of middlemen/intermediaries like in real estate, supply chain, law, banks and other
third party service providers charging exorbitant fees.
Enable people to become their own banks and providing them the freedom to use their money. This
would especially help unbanked nations.
Battle the inflation arising due to the politically based fiat currency.
Stop the usage of animal fat for paper currency and also disable the chances of making faked paper
currency.
Making use of the blockchain , smartcontracts for a variety of use cases ranging from the energy sector
to music, trading, e-commerce, digital advertising, healthcare, land registry, e-voting, transportation,
agriculture, supply chain, banking, insurance, governance, financial services, small businesses, retail,
cloud-computing, telecommunications, risk management, digital identity verification, data storage, app
development, IoT, stock exchange, market forecasting, social media etc..
Cryptographic security in cryptocurrency unlike digitally stored currency.
.. and much more.....

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By Patrick Firth, Anne Canfield -March 19, 20181691

What it is and why it’s going to change the world

What makes blockchain so important

Blockchain will revolutionize how business is done

Supply Chain Management

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Copyright © 2021 Michael Best Strategies LLC

By LUKE CONWAY Reviewed by JULIUS MANSA Updated Jun 1, 2021

Bitcoin vs. Blockchain

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Blockchain is a specific type of database.

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So how does a blockchain differ from a database?

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How is Blockchain Used?

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By LUKE CONWAY Reviewed by JULIUS MANSA Updated Jun 1, 2021

Bitcoin vs. Blockchain

How is Blockchain Used?

Advantages and Disadvantages of Blockchain

What's Next for Blockchain?

Blockchain is a specific type of database.

A database is a collection of information that is stored electronically on a computer system. Information,

So how does a blockchain differ from a database?

Bitcoin vs. Blockchain

Blockchain vs. Banks