October 27, 2022

What is a Blockchain?

Blockchains are decentralized record-keeping systems that are trustless, accessible, and transparent for users. Blockchain technology is expected to help solve many existing problems in the near future.
By aj
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Overview

In simple terms, a blockchain can be thought of as a distributed system used to keep virtual records. While digital record-keeping has been widely used for decades, blockchain technology is unique because it allows records to be kept in a way that is decentralized, trustless, accessible, and transparent. Blockchain systems are the backbone of crypto and web3.

Why Decentralization Matters

Centralized Systems are Flawed

Whether it’s your debit card or social media account, all of the digital tools we use today are provided by centralized organizations. For some, that’s fine; for others, it’s a nightmare. Many of these basic tools humans are accustomed to can be stripped from them in the blink of an eye. 

  • Transact somewhere your bank doesn’t approve of? Your funds can be frozen.
  • Urgently need to transfer money across international lines at an off hour? You have no choice but to wait and pay whatever fees are demanded.
  • Share something on social media that ~redacted~ doesn’t approve of? Your account can be deleted.

So long as people are using their products or services, centralized organizations have the power to be the judge and the jury. This is not to say that all centralized organizations are bad - in fact, most are good - but rather to point out the concerning amount of power these organizations have over their users. 

Decentralized Systems Can Help

Unlike other virtual record-keeping tools, blockchains are not maintained by a single person or an individual organization. Most blockchains are maintained by large networks of participants with no centralized party to take charge or coordinate. Different blockchain consensus mechanisms are used to ensure that blockchain infrastructure providers are financially incentivized to follow a hard-coded rule and operate in the same (and only) way to keep a blockchain operational and secure (as decentralized as possible). By aligning the interests between infrastructure providers and users, blockchains are able to maintain decentralization.

The decentralized networks that blockchains run on help ensure that the data being added to the virtual record is accurate and cannot be changed. Data that is added to a blockchain is recorded by the entire network of participants in order to ensure it cannot be quietly manipulated or altered. Most of blockchain technology’s popularity can be attributed to its decentralized nature; blockchain’s ability to maintain decentralization is what allows it to be trustless, accessible, and transparent for users.

Trustlessness

Most existing systems require some level of trust between the provider/manufacturer and user/consumer.

  • Someone who transfers money through a payment app trusts that payment service will deliver the funds promptly without stealing or freezing them;
  • Someone who checks their local weather station trusts that the station is reporting the weather as accurately and timely as possible.

When a blockchain is properly decentralized, no single entity has authority over the record-keeping system. This means that users do not need to trust each other or a third party for the source of truth, or for a system to function as intended. The accuracy of data is verified by network participants who must reach a consensus before it is added to the blockchain.

Accessibility

Products and services on the internet aren’t as easily accessible as they may seem. Centralized institutions act as gatekeepers and not everyone is treated equally.

  • Banking services are typically only offered to users that meet certain profile requirements in certain jurisdictions;
  • Digital content is often censored by governments;
  • Access to platforms is controlled by the companies who own those platforms and thus can dictate their accessibility.

Blockchains allow anyone with an internet connection to access the blockchain-based products and services they need. All users are treated equally, regardless of their identity, location, or financial status. This makes it easier for anyone to gain access to helpful products, services, and content that may otherwise be restricted.

Transparency

Traditional record-keeping systems are rarely transparent. Data is often collected, organized, and presented as fact without actual proof. 

  • Manufacturers can mislead consumers about the origin of their products;
  • Companies can manipulate financial numbers to appear more attractive to investors;
  • Researchers can alter data to secure more funding or gain regulatory approval.

Since the data being added to a blockchain is recorded by all of the network’s participants, transparency is required in order for a blockchain to operate. The transparency provided by blockchains can be beneficial to both regulators and companies by providing permanent records of all transactions and simplifying the auditing process. Everyone has the ability to gain access to all transactional data on a blockchain.

Conclusion

Not all blockchains are built the same. No individual blockchain is perfect. Most blockchains prioritize certain features at the expense of others. Regardless, blockchain technology has the potential to drastically improve the efficiency and integrity of existing record-keeping systems. Blockchain systems will help enable a better, decentralized future for everyone.

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