The Underlying Principles of Blockchain

Blockchain, an open, distributed ledger that can document transactions between two parties efficiently and in a verifiable and permanent way, is experiencing a strong hype right now. A lot of industry experts and thought leaders are speaking about the technology’s potential to revolutionize the way we do business.

Blockchain is believed to have the potential to revolutionise the way we do business.

Due to its complexity (technological, regulatory and social), the distributed ledger technology will require broad coordination, and reasonable amount of time for the mainstream adoption. Nevertheless, businesses in every industry have to prepare, and prepare in advance. Most importantly, executives have to understand WHY and HOW it works. Here are 5 basic principles of the blockchain technology:

1. Distributed database. Each party on a blockchain has access to the whole database and its complete history. No single party regulates the data or the information. Every party can validate the records of its transaction partners directly, without an intermediary.
2. Peer-to-peer transmission. Communication occurs straightforwardly between peers instead of through a central node. Each node stores and forwards information to all other nodes.
3. Transparency with pseudonymity. Every transaction and its respective value are visible to anyone with an access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.
4. Irreversibility of records. Once a transaction is inputted in the database and the accounts are updated, the records cannot be changed, because they are linked to every transaction record that came before them (this is basically where the term “chain” comes from). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network.
5. Computational logic. The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between the nodes.

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Learn more about Blockchain:

Briefly about Blockchain

Blockchain in 2017: is Optimism Sustainable?

Banking and Blockchain

Blockchain: 2 Use Cases?