At its simplest, a blockchain is a distributed database of transactions that are cryptographically linked to form an incorruptible chain. Transactions are grouped together at intervals to create a ‘block.’ Every new block depends on its ancestor block being unaltered. This is the chain, and it allows anyone to start at the first block and ‘walk’ the chain, verifying the correctness of each subsequent block. In the most famous case, Bitcoin, the blockchain is used to keep a record of Bitcoin transactions all the way back to the very first one. Anyone can examine the blockchain to find any particular transaction and verify that nothing has been altered.
Harness the power of blockchain and contracts together — and create smart contracts.
Imagine funds held in escrow until the work is verified as complete, at which point the contract stored in the blockchain automatically releases payment to the contractor. The transfer of value between parties takes place securely and reliably and is verifiable. The transaction takes place almost instantaneously, without the need for input from any lawyer or another third party.
How is a blockchain incorruptible?
In two ways. Suppose you wanted to change a transaction:
Each block is cryptographically linked to the previous one. To alter a transaction in the blockchain is to alter the cryptographic value of the block containing that transaction. Every block from that point forward would now fail to verify and it would be obvious that something was changed, and it would be obvious in which block that happened.
In a distributed blockchain, there is no single keeper of the blocks. Many computers around the world (or country, city, company, etc.) maintain their own copies of the blockchain. Changing a single transaction in a block on one copy of the blockchain is not useful as there will be multiple other copies that would quickly show not only the altered block but also pinpoint the falsified transaction.
Does a blockchain have to be distributed?
No, of course not. There’s definitely value in a ‘local’ blockchain where there is only one copy. It’s just somewhat more vulnerable to being altered. On the other hand, keeping a distributed blockchain not only increases security, it also increases transparency and accountability, which can lead to goodwill and trust.
Does blockchain have to deal only with cryptocurrencies (i.e. money)?
Definitely not! Blockchain as a financial ledger is just one of many possible uses.
Blockchain is just as applicable to a supply chain. Imagine a blockchain that traces the disposition of parts from the moment they leave the factory to installation. Using blockchain technology could make it a lot easier to trace mysteriously ‘missing’ inventory!
Here are a couple other examples of how blockchain can be used outside of cryptocurrencies:
A variation on the supply chain use; tracing fish for sustainability and humanitarian purposes.
Blockchain is even being used to pinpoint the origin of contaminated foods in order to identify affected vendors and issue recalls only where needed and not universally.