What are blockchains? | The Economist

[ad_1]

Sep 18, 2021

IT IS COMMON in tech circles to hear a sales pitch that is both simple and confusing. it’s gonna be like X [insert the name of any successful business], but on a blockchain. The enthusiastic entrepreneur is quick to assume that everyone is both familiar with the technology and in agreement on its merits. But what is a blockchain? And what are the advantages of using it?

A blockchain is a database that contains the history of all the information it was designed to store. It is made up of a chain of blocks of information that overlap into an immutable chain. Bitcoin, one of the first blockchains, was established in 2009. It stores data on bitcoin transactions, providing proof of who owns what at all times. What sets a blockchain apart from other databases is that its ledger is distributed, publicly available, and replicated to thousands of computers or nodes around the world. Rather than a centralized entity, like a bank or a technology platform, ensuring the accuracy of the ledger, it is verified by a decentralized network of individuals.

Although the Bitcoin blockchain is public, it is also trustworthy and secure. This is guaranteed by the blend of mathematical subtlety and brute computational force built into its consensus mechanism, the process by which nodes verify new transactions and add them to the blockchain. Computers rush to solve a crypto problem, the first to do so wins newly mined coins and a new block is added.

Newer blockchains, like Ethereum, store more information, such as lines of computer code. A function or application that can be programmed in code can be guaranteed to work as written. The Ethereum blockchain offers proof that the code has been executed. Developers can write conditional code software that runs after a certain trigger, allowing smart contracts to be set up on future events.

Unlike private networks, open public blockchains are transparent (anyone can view them), permissionless (anyone can use them), and censorship-resistant (no one can stop them). But because they require consensus, they can be slow and complex to build. Building applications that conduct financial activities and distribute digital content over a blockchain can therefore be trickier than operating through trusted intermediaries. Building X on a blockchain might be smart, but it’s easier said than done.

This article appeared in the Briefing section of the print edition under the headline “Building consensus”

[ad_2]