What Is Blockchain?

Each block contains a group of transactions, a timestamp and the hash of the block before it. Thanks to this link, the blocks form a chain: if the content of a past block is changed, its hash changes too and the link with the following blocks breaks. Nodes in the network keep a copy of the ledger and decide together which blocks are added to the chain through a consensus mechanism such as Proof of Work or Proof of Stake. This way, a shared record can be kept without trusting a single institution.

Blockchain technology came to life in 2009 with Bitcoin. Ethereum added smart contracts to the chain and paved the way for decentralized applications (dApps). Networks that anyone can join are called public (permissionless) blockchains, while there are also permissioned blockchains in which participation is limited to certain institutions. In addition to cryptocurrencies, use cases are being developed in areas such as supply chain tracking, tokenization of assets and digital identity.

The strengths of blockchain are transparency, censorship resistance and the difficulty of altering records. On the other hand, its transaction capacity is limited compared with traditional databases, and a balance has to be struck between decentralization, security and scalability. Also, a blockchain does not guarantee that data is correct, only that it has not been altered once recorded; data entered incorrectly onto the chain also becomes permanent.