What is a blockchain?
Blockchains like Bitcoin, Ethereum, and Tezos are secure, decentralized computer systems that anyone can use to keep track of data and run programs. Because they are decentralized, developers can use them without worrying about who is maintaining the system and whether they will act honestly. Instead of a single authority maintaining the system, a large network of independent computers called nodes ensure that the system is tamper-proof and stable.
People use blockchains to manage data that must be persistent and protected from third-party meddling, which is why early blockchains like Bitcoin keep track of currency balances. Because the data is spread across many nodes that follow strict rules, users can be confident that no other user can manipulate the system, change their currency balances, or refuse valid transactions.
Developers also use blockchains to host programs called smart contracts. Like currency balances, smart contracts are spread across the nodes in the system. Therefore, when you write and deploy a smart contract, you can be confident that it will run without having to worry about which computer will run it or whether someone else will try to stop it or change it.
The blockchain data itself is stored in a series of blocks of computer information, each linked to the previous block in the chain by a cryptographic hash. This link makes the blockchain tamper-evident, because if the contents of a block change, the hash no longer matches the pervious block.
Many independent computer nodes worldwide keep a copy of the blockchain data, which makes it tamper-proof and immutable. These nodes follow strict rules for adding blocks to the chain. This process of maintaining the blockchain data and handling updates is the blockchain's consensus mechanism, and it's an important part of how the blockchain remains independent of any third party meddling. We'll talk more about consensus later.
The Tezos blockchain
Tezos is one example of a blockchain. Other popular examples include Bitcoin and Ethereum. Tezos was created by Arthur Breitman in 2018.
State of the chain
Each time a transaction occurs on the chain, the global state of the blockchain is updated and that information is passed to all the nodes on the chain.
Fundamentals of blockchain technology
blockchains have three guiding principles;
- Cryptography
- Decentralization
- Consensus
Cryptography: On the blockchain, blocks are linked to each other using a verifiable cryptographic hash to keep the system secure and trusted. This means that when data has been added to the blockchain, that data cannot be altered without breaking the cryptographic link between the blocks, rendering the data invalid. Cryptography on the blockchain also means that no one can access your account without your private keys.
Decentralization: This is a core principle of blockchain technology. Decentralization means that no single entity has ownership of the systems or can access your assets (tokens) stored on the blockchain without your permission. This is unlike traditional entities like banks, big tech corporations, governments and more. On the blockchain, data is stored through a distributed network of nodes (peer-to-peer). Decentralization has certain benefits. With a bank for example, regulators can request for your account to be closed due to political differences. With a decentralized system like the blockchain, there are no regulators or third parties who hold the power to close an account.
Consensus: Consensus is the algorithm behind how users on a blockchain decide which transactions are valid and can be added to a blockchain and which transactions are not. There are two major consensus mechanisms for blockchains today, proof of work and proof-of-stake. Tezos uses a proof-of-stake mechanism. We'll touch more on what this means in future sections.
What is the difference between a blockchain and Cryptocurrency?
Cryptocurrencies are digital assets used as a store of value on a blockchain. The blockchain on the other hand, refers to the entire network of blocks containing records of transactions that have been verified by nodes on the chain.
Some use cases of blockchain
Blockchains are not just confined to cryptocurrency. Because Blockchain technology ensures transparency and security, it can have an impact in many sectors of the economy. Its use cases are endless, and here are some of those use cases:
- Capital Markets - blockchain technology allows for easier, faster and cheaper access to capital. For example, it enables peer-to-peer trading, quicker and transparent settlement of payments additionally it also allows for reduced costs and counterparty risks, and streamlined auditing and compliance.
- DeFi - Stands for Decentralized Finance. It refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized applications built on Tezos. This new economic system is setting a financial standard for access, opportunity and trust in which anyone can build and participate in it.
- NFTs and Art - A non-fungible token is some data stored on a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent data such as digital art, video, audio, and other types of files or ownership over something.
- Digital voting - Organizations can use a blockchain to cast and store votes instead of in-person paper voting. This online voting process is significantly more transparent and tamper-proof, because the voting is secure and the vote record is immutable.
- Gaming - In-game rewards and tokens can be stored on a blockchain to facilitate trading, storage, and portability.