A blockchain is a type of distributed ledger. But new distributed ledgers are emerging. These are databases where control over the data’s evolution is shared between entities. Here’s a handy cheatsheet.
This short post is inspired by a conversation I had recently with a couple of finance professors from top business schools who had some questions about blockchains.
Prof A explained that he had heard all the fuss about blockchains but was unsure whether it was revolutionary or evolutionary (I think the word disruptive was also used). I have written about disruption in Fintech and the Evolutionary vs Revolutionary aspects of distributed ledgers before (hint: it depends, it’s both, and yes, perhaps).
Then he asked, “Yes, but is there anything new?”
In the context of distributed ledgers, I have noticed that many commentators and consultants confuse shared control of data with the sharing of data itself. The difference is crucial, and this common simplification misses the most important aspect of distributed ledgers.
In this post I discuss three ideas:
- Sharing of data vs shared control of data
- Control of data by rules vs by power
- Enforcement of rules by participants
In the context of data security, the immutability of data stored on blockchains is important. What do people mean when they say “Blockchains are immutable”? In this post I try to explain the key concepts.
What are people talking about when they talk about smart contracts?
In the context of blockchains and cryptocurrencies, smart contracts are:
– pre-written logic (computer code),
– stored and replicated on a distributed storage platform (eg a blockchain),
– executed/run by a network of computers (usually the same ones running the blockchain),
– and can result in ledger updates (cryptocurrency payments, etc).
… In other words, they are little programs that execute “if this happens then do that”, run and verified by many computers to ensure trustworthiness.
If blockchains give us distributed trustworthy storage, then smart contracts give us distributed trustworthy calculations.
Smart contracts are one of the functionalities that sets Ethereum apart from other blockchains.
Important note: If you own more than $1,000 worth of cryptocurrency then you should definitely be using a hardware wallet instead of keeping coins on exchanges. I recommend a Trezor which you can buy for €89 directly from their website.
This article is a gentle introduction to blockchain technology and assumes minimal technical knowledge. It attempts to describe what it is rather than why should I care, which is something for a future post.
Shorter companion pieces to this are:
- So you want to use a blockchain for that? Some common misconceptions
- Confused by blockchains? Revolution vs Evolution
- No, blockchain is not a solution looking for a problem
- A gentle introduction to immutability of blockchains