What is Blockchain?

John Craddock, Microsoft MVP, acclaimed international speaker, and identity guru explains the term Blockchain

Blockchain is a Distributed Ledger Technology (DLT) that allows a definitive ledger of transactions to be created without the need for a central authority to arbitrate which transactions are valid. However, there are many different types of blockchain.

Blockchain stems from Satoshi Nakamoto’s 2008 whitepaper proposing an electronic cash system that sent peer-to-peer transactions without the need for a central authority.

His proposal became Bitcoin, allowing individuals to create transactions that move funds between interested parties.

Cryptography is core to the implementation, and funds can only be moved through a cryptographically verifiable transaction. The challenge is preventing a double-spend where an individual sends the same funds to two different parties. Solving that problem requires a definitive ledger that holds the confirmed transaction, a transaction is only added to the ledger if the source funds are available for spending.

How Blockchain works

The Bitcoin network is made up of nodes (compute engines) that communicate with each other via a peer-to-peer network. Each node will have a view, which may be different, of the current validated but unconfirmed transactions. The transaction must be added to a ledger to confirm it, but with no central authority, who adds it?

Blocks of transactions

The ledger is made up of blocks of transactions, the very first block of transactions in the ledger is referred to as the “genesis block”, the next block (2) links to the genesis block, block 3 links to block 2 and before you know it you have a chain of linked blocks – Blockchain! Nodes compete to add the next block to the chain, the winning node creating the next set of confirmed transactions. To add a block the node has to solve a cryptographic puzzle (referred to as mining). Gaming theory and probability come into play, and the building of the blockchain will be distributed across the mining nodes.

When a transaction is added to the chain, it is confirmed. We now have a definitive ledger of confirmed transactions created without the need for a central authority. Although this explanation has been simplified and based on Bitcoin and transactions involving money.

Uses of Blockchain

A blockchain can be used for managing any transaction: digital identity, property, reports, contracts, etc. Rules (smart contracts) can be implemented to specify the conditions required to execute a valid transaction.

Want to know more about Blockchain?

Watch this recording of John’s webinar about Blockchain.

Blockchain underpins the concept of Decentralized Identity which you might also be interested in.

Updated January 2024