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A blockchain is a distributed, cryptographically-secure database structure that allows network participants to establish a trusted and immutable record of transactional data without the need for intermediaries. A blockchain can execute a variety of functions beyond transaction settlement, such as smart contracts. Smart contracts are digital agreements that are embedded in code and that can have limitless formats and conditions. Blockchains have proven themselves as superior solutions for securely coordinating data, but they are capable of much more, including tokenization, incentive design, attack-resistance, and reducing counterparty risk. The very first blockchain was the Bitcoin blockchain, which itself was a culmination of over a century of advancements in cryptography and database technology.

When a digital transaction occurs in a blockchain network, it is grouped together in a cryptographically-secure “block” with other transactions that have occurred in the same time frame. The block is then broadcast to the network. A blockchain network is comprised of nodes or participants who validate and relay transaction information. The block of transactions is verified by participants called miners, who use computing power to solve a cryptographic puzzle and validate the block of transactions. The first miner to solve and validate the block is rewarded. Each verified block is connected to the previously verified block, creating a chain of blocks. One important cryptographic underpinning of blockchains is the hash function. Hashing assigns a fixed value to a string that is inputted into the system. Blockchain hashing power results in a deterministic, quickly-computable, and preimage-resistant system. Preimage resistance is the property of a hash function that it is hard to invert, that is, given an element in the range of a hash function, it should be computationally infeasible to find an input that maps to that element, resulting in increased security.

Blockchain technology has a wide variety of benefits, for both global enterprises and local communities. The most commonly cited benefits of a blockchain are trusted data coordination, attack-resistance, shared IT infrastructure, tokenization, and built-in incentivization. Blockchain is considered a disruptive technology because of its ability to safeguard personal information, reduce intermediaries, unlock digital assets, and potentially open up the global economy to millions more participants. Sometimes called the Trust Machine, blockchain technology is bringing transparency and security to digital networks across countless industries. In many ways, the blockchain revolution can be considered a revolution in trust.

The “block” in a blockchain refers to a block of transactions that has been broadcast to the network. The “chain” refers to a string of these blocks. When a new block of transactions is validated by the network, it is attached to the end of an existing chain. This chain of blocks is an ever-growing ledger of transactions that the network has validated. We call this single, agreed-upon history of transactions a blockchain. Only one block can exist at a given chain height. There are several ways to add new blocks to an existing chain. These are often termed “proofs,” i.e. Proof of Work (PoW), Proof of Stake (PoS), and Proof of Authority (PoA). All involve cryptographic algorithms with varying degrees of complexity.

Distributed ledger technology is a broad category that encompasses blockchain technology. A distributed ledger is just what its name implies. Instead of accounting for data through one centralized computer, distributed ledger technology uses many participants in a network to maintain a digital record. Blockchain technology supplements a distributed ledger with cryptographic functions and a consensus algorithm to enable greater incentive design, security, accountability, cooperation, and trust.

Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation and performance of some sort of agreement. Ethereum pioneered practical smart contracts for the blockchain ecosystem. Ethereum is a decentralized, open source, and distributed computing platform that enables the creation of smart contracts and decentralized applications, also known as dapps. A smart contract is essentially a program coded for a specific purpose. Smart contracts have numerous applications. In banking and finance, smart contracts can help automate claims processing and enable real-time enforcement of regulatory control limits. In supply chain management, smart contracts are used to enforce asset tracking processes, as well as automate compliance and reporting. Smart contracts have limitless formats in order to support a wide range of industries.