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Blockchain Fundamentals

A blockchain is a distributed ledger: several nodes keep and verify a copy of the history. Bitcoin is its best-known use. The mechanism can also help when several parties need to share transactions without a central database.

Before evaluating a use case, understand its trade-offs: replication, consensus, cost, latency and governance.

The foundations​

History in brief​

Blockchain principles were studied before the technology appeared, including in a 1982 thesis by cryptographer David Chaum. The thesis presents a protocol that prefigures it.

Blockchain was not explored as a concept until 1991. Researchers Stuart Haber and W. Scott Stornetta then designed a system that protected time-stamped documents from falsification.

A year later, in 1992, the system they designed was optimized by integrating the Merkle tree, a technique for grouping several documents into a single block.

The first concrete incarnation of the blockchain appeared in 2008 and was presented to the public on January 3, 2009. Its inventor remains unknown behind the pseudonym Satoshi Nakamoto. This first blockchain became the basis of Bitcoin.

What is a Blockchain?​

A blockchain is a distributed database, made up of blocks linked to each other.

  • Each block contains a certain number of transactions.

  • Blocks are added to the chain sequentially.

  • Each block contains a hash of the previous block.

    • Each block is timestamped and verified by network nodes.
    • Each block is added to the chain through a process called "mining".
    • Each block is immutable and cannot be changed without changing all related blocks and the network consensus.

Blockchain is decentralised: data is distributed across several nodes instead of being stored in one place or managed by one entity. This structure improves transparency and makes censorship harder.

Few useful projects have been developed so far. ICOs raise funds for projects that may not have a product yet. Buying these tokens means funding a product whose existence remains uncertain.

Most of these projects are not decentralised either: one entity often controls most of the tokens.

Think of blockchain as a public ledger, where each page of the book represents a block. Once a page is full of entries (transactions), a new page is added. But once written, a page cannot be changed without changing all subsequent pages.

What data structure?​

Blockchain uses a data structure called a linked list.

Each block contains a record of current transactions and a hash of the previous block. This hash creates a link between the blocks, thus forming a chain.

Basic operation​

  • Transaction Creation: Users can send transactions to the blockchain, often via a digital wallet.
  • Verification: Transactions are then verified by network nodes.
  • Added to a block: Once verified, these transactions are added to a new block.
  • Mining: The block undergoes a process called "mining", where it is validated and added to the chain.

Application of Blockchain​

  • Cryptocurrencies: Like Bitcoin or Ethereum, used as decentralized digital currencies.
  • Smart contracts: Programs that run automatically when certain conditions are met.
  • Supply chains: To track the provenance and distribution of products transparently.
  • Digital identity: For secure identification without an intermediary.
  • Voting systems: For transparent and secure voting.
  • Data storage: For decentralized and secure data storage. (example: human knowledge through time).
  • Games: For long-term video games, with valuable objects spanning decades.
  • Certification: To certify diplomas, documents, proof of work, proof of ownership, proof of copyright, etc... (sell/buy a house without going through a notary for example).

For wider adoption, blockchain will need to mature and fit into uses that hide its complexity. Users will also need to understand its costs and limits.

What is decentralization?​

Decentralization refers to the distribution of power and authority across multiple nodes or entities, rather than concentrating them in a single central point.

This means that the data is not stored on a central server, but is distributed across several computers (nodes) around the world.

  • Resilience: Difficulty of breaking down because there is no single point of failure.
  • Transparency: All transactions are visible to all participants.
  • Security: Difficult to hack due to its distributed nature.

Imagine a library where every book is copied and stored in thousands of other libraries around the world. If a library burns, the information is not lost because it exists elsewhere.

Blockchain is a distributed-ledger mechanism. It can be useful when several parties need to share a verifiable history without relying on one central database, but it also adds cost, latency, and complexity. Understanding those trade-offs is more useful than assigning it a general promise of transformation.