Many people talk about Blockchains and blockchain technology, most likely as a buzzword for the technology behind cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). How many people, I wonder, actually know what it is and understand it on more than a superficial level? I certainly didn't, so I decided to do some further reading to see if I could make sense of it and convey my understanding to other people, my father among them, since he recently asked me to and I was lost for words at the time.

Here then, in hopefully simple and easily-understood language, is what I understand after reading Blockchain for Dummies (IBM Ltd Ed, 2017), before moving on to Blockchain for Beginners, The Internet of Money (vol1-3), Blockchain Revolution, The Basics of Bitcoins and Blockchains and Blockchain Basics: A Non-Technical Introduction:

Blockchain in Simple Terms

"Comparable to a checkbook that's dispersed among many computer systems worldwide, blockchain is an unalterable and distributed ledger ..."
  — Kinza Yasar, 6 must-read blockchain books for 2021+ [1]

Creating blocks of data in a chain and digitally/cryptographically signing/verifying them is not a new concept. Companies have been doing it since the seventies. What is new is doing it at scale on a distributed network.

"A blockchain is a distributed ledger that is replicated across multiple nodes and enables immutable, transparent and cryptographically secure record-keeping of transactions. The blockchain technology is the backbone of cryptocurrencies [(and potentially, other technologies)], and it has applications in finance, government, media and almost all other industries."
  — _Mastering Blockchain_ (2nd Ed, 2008)

That's a lot to take in, so let me try to unpack that:

• Distributed ledger: A documented account of transactions on a distributed network
• Replicated across multiple nodes: Multiple computers/clouds/server farms keep a record of transactions
• Immutable, transparent and cryptographically secure: Once recorded in a block, blocks cannot be changed or tampered with, thanks to the use of cryptography and cryptographic security
• Backbone of cryptocurrencies: Cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), are backed by blockchain technology.
• Applications in finance, government, media and almost all other industries: Blockchain's applications aren't limited to cryptocurrency alone. Anyone wishing to store immutable and cryptographically secure accounts/transactions can develop blockchain technologies or create applications on existing ones.

Why Should You Care?

• At its core, blockchain technology makes record-keeping and transfers simpler, safer, faster, often cheaper (no middlemen) and with no duplication of records (all parties have access to a single ledger).
• Blockchain technology can be used to record anything that involves transactions and assets (tokens), not just cryptocurrencies (which are just one use case).

But wait, there's more!

That's it, really, put plainly. However, there's got to be more to it than that, for people to write whole books on the topic, so let's dive in.

A Deeper Look at Blockchain Technology

As with most subjects I want to understand, I look for a(n) "X for Dummies" and/or "Head First X" book as my first step. Fortunately, the former exists and is only fifty-one pages long. It seems to be targeted at people looking to leverage blockchain technology in a business environment, but it's not without value.

Blockchain for Dummies by Manav Gupta (IBM Ltd Ed, 2017) [Wiley]

Here's what I gleaned from this brief book that's more pamphlet/instruction manual than anything else it might be:

• Although most often associated with cryptocurrencies (such as Bitcoin), blockchain technology is something different; cryptocurrencies operate on top of blockchains. Crypto is not necessarily the most interesting or best use of this technology, which potentially extends far beyond it.
• A blockchain is a shared and distributed ledger that enables securely recording and storing transactions and tracking assets (tokens) in a network.
• Assets may be tangible (such as houses or vehicles) or abstract (such as cryptocurrencies, intellectual property and patents).
• Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved. Cryptocurrencies are merely one application of blockchain technology, much like the World Wide Web is an application that runs on the Internet.
• The underlying ledger (blockchain) for transactions is tamper-evident. A transaction can’t be changed; it can only be reversed with another transaction, in which case both transactions are visible.
• A possibly helpful analogy is to think of blockchain as an operating system, such as Microsoft Windows or Mac OS X, and Bitcoin as only one of the many applications that can be run on that operating system. Blockchain provides the means for recording Bitcoin transactions — the shared ledger — but this shared ledger can be used to record any transaction and track the movement of any asset whether tangible, intangible, or digital.
• To reinforce a point, cryptocurrencies and blockchain are not the same. Blockchain provides the means to record and store crypto transactions, but blockchain has many uses beyond cryptocurrencies. Crypto is only the first use case for blockchain.
• The blockchain architecture gives participants the ability to share a common ledger that is updated, through peer-to-peer replication, every time a transaction occurs.
• Peer-to-peer replication means that each participant (node) in the network acts as both a publisher and a subscriber. Each node can receive or send transactions to other nodes, and the data is synchronized across the network as it is transferred.
• The blockchain network is economical and efficient, because it eliminates duplication of effort and reduces the need for intermediaries. It’s also less vulnerable because it uses consensus models to validate information. Transactions are secure, authenticated, and verifiable.
• The disruptive/game-changing nature of blockchain is that instead of multiple parties having copies of records, there is a single transaction record which is now shared and available to all parties.
• By using a shared ledger on a blockchain network, every partici­pant can access, monitor, and analyze the state of an asset, irrespective of where it is within its life cycle.
• Smart contracts (digital agreements or set of rules that govern a transaction) act as software that govern(s) and validate(s) the attributes and behaviours of assets on a blockchain.

How it Works

Here are some of the positive attributes/mechanisms of a blockchain:

• Consensus: For a transaction to be valid, all participants must agree on its validity.
• Provenance: Participants know where the asset came from and how its ownership has changed over time. This metadata can be stored in the blocks themselves.
• Immutability: Once a transaction is recorded and signed, it can't be reversed or tampered with. To reverse the action, a new transaction is required.
• Deduplication: A single, shared ledger provides one place to go to determine the ownership of an asset or the completion of a transaction. Each participant needn't keep a separate copy of the records.

Benefits

• Time Savings: Transaction times for complex, multi-party interactions are reduced from days to minutes or seconds. Transaction settlement is faster, because it doesn’t require verification by a central authority.
• Cost Savings: A blockchain network reduces expenses in several ways:
  
  • Less oversight because the network is self-policed by network participants
  • fewer intermediaries due to direct exchange
• Tighter Security: A blockchain’s security features protect against tampering, fraud, and cybercrime. It enables proof that the goods or assets traded are exactly as represented.
• Trust: Blockchain enhances trust across a network, particularly a public one. It’s not that you can’t trust those with whom you conduct business; it’s that you don’t need to when operating on a blockchain network.

"Because every transaction builds on every other transaction, any corruption is readily apparent, and everyone is made aware of it. This self-policing can mitigate the need to depend on the current level of legal or government safe-guards and sanctions to monitor and control the flow of business transactions. The community of participants does that.

"Where third-party oversight is required, blockchain reduces the burden on the regulatory system by making it easier for auditors and regulators to review relevant transaction details and verify compliance."

Why It's called "Blockchain"

"Blockchain owes its name to the way it stores transaction data — in blocks that are linked together to form a chain. As the number of transactions grows, so does the blockchain. Blocks record and confirm the time and sequence of transactions, which are then logged into the blockchain, within a discrete network governed by rules agreed on by the network participants.

"Each block contains a hash (a digital fingerprint or unique identifier), timestamped batches of recent valid transactions, and the hash of the previous block. The previous block hash links the blocks together and prevents any block from being altered or a block being inserted between two existing blocks. In this way, each subsequent block strengthens the verification of the previous block and hence the entire blockchain. The method renders the blockchain tamper-evident, lending to the key attribute of immutability."

Remember: To be clear, while the blockchain contains transaction data, it’s not a replacement for databases, messaging technology, transaction processing, or business processes. The blockchain contains verified proof of transactions. However, while blockchain essentially serves as a database for recording transactions, its benefits extend far beyond those of a traditional database.

Smart Contracts

• A smart contract is an agreement or set of rules (software algorithm) that govern(s) a transaction; it’s stored on the blockchain and is executed automatically as part of a transaction.
• Smart contracts may have many contractual clauses that could be made partially or fully self-executing, self-enforcing, or both. Their purpose is to provide security superior to traditional contract law while reducing the costs and delays associated with traditional contracts.
• Smart contracts are typically created by software developers, since they are written in programming languages. Applications serve as a conduit between users and the blockchain.
• Through smart contracts, the blockchain establishes the conditions under which a transaction or asset exchange can occur. No more faxing or emailing documents back and forth for review, revision, and signatures is required.

Use Cases

Blockchain technology has the potential to disrupt/revolutionise many industries that rely on contractual exchanges and transactions. The financial industry has several use cases, whether it be commercial finance, trade finance or cross-border transactions, insurance, government regulation/oversight, supply chain management, healthcare (medical records) or Internet of Things (IoT).

That's all for this post. In the next one, I'll look at Blockchain for Beginners — Study Guide, by the Blockchain Council.

Snark out!