A concise explanation of the world’s most advanced database technology
Defining blockchain technology
While blockchain technology is best known for being the underpinning to Bitcoin and other decentralized digital currencies, that is just one leading example.
At their core, Blockchains are a database technology. The primary feature that sets a blockchain apart from other similar technologies is the capacity to send and verify cryptographically secure data. In financial technology applications, this eliminates what was once an issue with digital transactions: double-spending.
The technology was first described in 1991 by W. Scott Stornetta and Stuart Haber as “a cryptographically secured chain of blocks”. How the raw framework or core blockchain architecture is constructed opens the door to a range of applications, use cases and adaptations that stretch across several industries.
IBM more recently defined blockchain technology as a “shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.”
Merriam-Webster defines it as a “digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.”
The U.S. Federal Trade Commission describes the blockchain as a “public list of records that shows when someone transacts with cryptocurrency.”
As the above definitions allude to, blockchain technology does not have a universal definition. As the technology itself can be shaped and deployed to suit various purposes. Blockchain’s definition therefore arises from the particular application and use case in which it’s being utilized.
Public and permissioned blockchains
The blockchain governs at the protocol level. It is like a ledger that stores information accessible across network operators. This is why the term “shared” or “distributed” is used in conjunction with blockchain-based networks. However, permissioned blockchains, unlike their public counterparts (e.g. Bitcoin, Ethereum, etc.), can and do exist.
In permissioned chains, authorized users are established as operators within the network. Whether these blockchains are more viable than decentralized, public-access networks depends on the specific use case.
A more exclusive (i.e. permissioned-based) blockchain can allow for greater efficiency. With control over network access, including the protocols set at the base level, transactions can be completed faster than on public blockchains.
However, blockchain’s most shining raison d’etre is decentralization. The blockchain, as Ethereum software company Consensys states, was designed to securely cut out the middleman in any exchange of asset scenario.
Blockchain explained: privacy
The third and less discussed blockchain type, is what’s labeled a consortium or semi-private blockchain.
Privacy is not an innate feature within any blockchain-based system. Privacy is something achieved through the layering in of rules and properties.
Access to the core protocol, managing who and where information is sent, stored, and visible to. Who has control to execute a transaction and what recourse is there for human error? These are critical requirements dealing with consortiums or a group of organizations.
Privacy and blockchain technology run in parallel. However, the assumption that transactions that occur on a public blockchain cannot retain some degree of privacy is a falsehood. Similarly, viewing permissioned chains as more secure is by no means a given truth. In both cases, it comes down to the architecture of the system.