What is Blockchain?
Yesterday I did an recording where the interviewer asked me a simple question – what is blockchain? This got me thinking – I had no go-to answer for this. People use this word to cover a wide range of networks and platforms, and some platforms such as R3’s Corda (Note: I work at R3) are categorised as “blockchain” platforms, when they don’t even bundle transactions into blocks!
The best description I could come up with was:
Blockchain is a word used to describe a bundle of technologies that allow digital assets to be created and passed from party to party with guarantees that the assets are authentic and haven’t been copied or counterfeited all without needing to trust a third party to open and maintain accounts for customers.
To break this down a bit:
Blockchain is a word…
I’ve stopped describing a blockchain as a data structure – the word just simply isn’t used exclusively in this context any more.
…used to describe a bundle of technologies…
Cryptographic hashing, public key cryptography, peer-to-peer networks, data sharing over the internet, databases, data structures, even zero knowledge proofs and other fancy new mathematical techniques.
…that allow digital assets to be created…
Sometimes mined, sometimes pre-mined, sometimes created within smart contracts, sometimes created from nothing. Now of course we aren’t talking about assets like photographs and documents which may be copied and shared, we are talking about assets where it is important that there aren’t copies, such as native cryptocurrency tokens, and legal agreements between issuers and bearers – which is what financial assets are.
…and passed from party to party…
This is the bit that is badly explained in the general blockchain narrative. People describe cryptocurrency payments as peer-to-peer. They are not. Most blockchain platforms and networks are architected as peer-to-peer networks (ie there is no “master” or golden copy of the ledger that is more senior than others), but the payments themselves are not sent from peer to peer. Think about it – if I send you a bitcoin I do not send data from my computer to your computer, as I would if I gave you some physical cash. Instead, I instruct the “cloud” of Bitcoin nodes to spend some BTC under my control and put them under your control. In fact, Corda is the only popular platform where data representing the token or asset is actually sent from the sender to receiver.
…with guarantees that the assets are authentic…
Using digital signatures and chains of transactions that enable you to trace the asset token back to when it was created – either mined or created in some sort of smart contract.
…and haven’t been copied or counterfeited…
If there’s one thing the blockchain industry has taught us, it’s that digital assets can be double spent. So the platforms have mechanasms to detect and resolve attempted double spends.
…all without needing to trust a third party to open and maintain accounts for customers.
All cryptocurrencies use the concept of accounts – this is your address or addresses managed by your wallet. But the difference is that you created your account at your end by plucking random numbers and using your random number as your private key, without having to go to a third party to open an account.
One of the key benefits of these digital assets, is that as tokens they can represent almost anything, and they can exist on the same ledger platform. We no longer need a “cash ledger” for money, an “equities ledger” for shares and random invoices floating around between companies as pdf attachments. We can tokenise all the things and transact on them together in so called “atomic transactions”, and they can also be subject to transparent and shared logic – smart contracts. But I’ll go into more detail about those benefits in another post.