A blockchain is a database, or ledger, of linked records distributed over countless computer systems around the world. The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is the foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. This is why blockchains are also known as a “distributed ledger technology” or DLT.
Introduction
Blockchains are best known for their crucial role in cryptocurrency systems for maintaining a secure and decentralized record of transactions.However, the blockchain concept was defined almost two decades before BitCoin. Its ability to guarantee the fidelity and security of its data and generate trust without the need for a trusted third party makes it the perfect foundation for cryptocurrency. But, it is also finding a place in business outside of the financial world.
Technology
Blockchains operate on a "trustless" platform. That is, we trust the system over the actors conducting the transactions. This is made possible because blockchains are decentralized and run a set of protocols ensuring the data is immutable. Decentralization provides, in addition to redundancy, a mechanism for maintaining data integrity. If someone modifies data on one node, the other nodes would cross-reference each other and find the invalid data. Thus, the source of truth is determined by consensus.
Implementation
Transactions are recorded in “blocks” that are linked together on a “chain” of previous transactions. Blocks have a defined storage capacity and, when filled, are closed and linked to the previously filled block. Each block has a unique digital signature based on the records it contains. The digital signature of the previous block becomes the link for the new block. Thus, any change to the data within a block will cause the digital signature to fail and/or the links to break -- therefore, invalidating the block of data.
Applications
There are many practical applications for the technology already being implemented and explored. It is more than just a buzzword on the tongue of every investor, blockchain stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen. It’s no longer a question of “if” companies will catch on to the technology—it’s a question of “when.”
Criticisms
Blockchains are an implementation of the cryptocurrency protocol. This protocol defines the requirements for how the transactions are to be validated and stored. However, blockchains are only one of a handful of technologies able to fulfill these requirements.
One of the biggest issues from business critics regarding the current blockchain technology is scalability. There are businesses working on solving these issues; with the initial goal of matching Visa's performance by processing a minimum of 1700 transactions per second. However, with smart contracts being an important component in the DeFi arena, the final goal may be somewhere in the neighborhood of several times that speed.