Blockchain - an Overview

A blockchain—originally, block chain—is a distributed database that maintains a continuously-growing list of records secured from tampering and revision. Each block contains a timestamp and a link to a previous block.

The blockchain—conceived in 2008 and first implemented in 2009—is the main technical innovation of bitcoin, where it serves as the public ledger for bitcoin transactions. In this case, every user is allowed to connect to the network, send new transactions to it, verify transactions, and create new blocks. The bitcoin blockchain design has been the inspiration for other applications.

A blockchain consists of blocks that hold batches of valid transactions. Each block includes the hash of the prior block in the blockchain, linking the two. The linked blocks form a chain.

In addition to a secure hash based history, any blockchain database has a specified algorithm for scoring different versions of the history so that one with a higher value can be selected over others. Peers supporting the database don't have the exact same version of the history at all times, rather they keep the highest scoring version of the database that they currently know of. Whenever a peer receives a higher scoring version (usually the old version with a single new block added) they extend or overwrite their own database and retransmit the improvement to their peers. There is never an absolute guarantee that any particular entry will remain in the best version of the history forever, but because blockchains are typically built to add the score of new blocks onto old blocks and there are incentives to only work on extending with new blocks rather than overwriting old blocks, the probability of an entry becoming superseded goes down as more blocks are built on top of it, eventually becoming very low.

The blockchain format was first invented for bitcoin, as a solution to the problem of making a database both secure and widely distributed.

As of 2014, "Blockchain 2.0" was a term used in the distributed blockchain database field.

The Economist described one implementation of this second-generation programmable blockchain as coming with "a programming language that allows users to write more sophisticated smart contracts, thus creating invoices that pay themselves when a shipment arrives or share certificates which automatically send their owners dividends if profits reach a certain level."

In 2016, the central securities depository of the Russian Federation (NSD) announced a pilot project based on blockchain technology. Various regulatory bodies in the music industry have started testing models that use blockchain technology for royalty collection and management of copyrights around the world.

In the bitcoin context, a blockchain is a digital ledger that records every bitcoin transaction that has ever occurred.

A blockchain implementation consists of two kinds of records: transactions and blocks.

Blocks includes a link to the preceding block and may include multiple transactions.

In order for a blockchain to be secure, it's necessary for blocks to be difficult to generate. Bitcoin solves this by making blocks require computational work to produce, specifically they require partial collisions of a secure hash function. The difficulty of finding these collisions automatically adjusts if blocks are being generated faster or slower than the intended rate. To incentivize the creation of new blocks a mining reward in bitcoins is given for the generation of new ones. The reward starts as a combination of a fixed mining fee and rewards payed by accepted transactions. Over time the fixed rewards go down, and eventually they'll become nothing, and mining rewards will be based entirely on transaction fees.

Blockchains always have some difficulty associated with generating new blocks. Usually they require lots of computational power, although variants have been proposed which make custom hardware be less favored over general purpose CPUs or GPUs, or bottleneck on memory or storage instead of power. There are also proof of stake systems, where new blocks don't require any power to produce but need to be signed by currently outstanding currency holders.

A transaction transfers currency from one key to another. The vast majority of them are verified with the digital signature of the sender and specify new transaction outputs which can be controlled with the digital signatures of the receipients, but bitcoin also has support for much more complicated requirements for unlocking outputs to enable smart transactions and Ethereum even more complicated.

To put limits on the cost of running nodes, there's typically a size limit on blocks which implicity limits how many transactions can be included. For bitcoin it's about a megabyte.

Every node in a decentralized system has a copy of the blockchain. No centralized "official" copy exists and no user is "trusted" more than any other. Transactions are broadcast to the network using software applications. Mining nodes validate transactions, add them to the block they're creating and then broadcast the completed block to other nodes. Blockchains use various timestamping schemes, such as proof-of-work to serialize changes.