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About Blockchain

What Is Blockchain?

Blockchains are the foundation technology on which all cryptocurrencies sit. A blockchain is a free tool to exchange information, ensuring better control of user data through cryptography.

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A blockchain is a free tool to exchange information, ensuring better control of user data through cryptography. It is a unique database. There are rules on how data can be added but once uploaded, it’s designed to be impossible for it to be erased, adapted or altered in any way.

Decentralized by nature, a blockchain is based on the principle of Peer to Peer (P2P) networking. The majority of networks have no dedicated server or single authority in control but instead function through the ongoing consensus among their user base. Becoming a user of a certain crypto coin or participating in a crypto project makes you an integral part of a greater decentralized network.

A blockchain or ‘distributed ledger’ holds data by applying the information to individual computer files called blocks which are in turn chained together. Once chained together, the contents hold immutable information because each new block carries the DNA of the previous block and is chained to it,therefore making it virtually impossible to alter.

In 1991, the first blockchain was created by Stuart Haber and W Scott Stornetta. Its function was to transmit information in an encrypted manner.

The blockchain as we know it today is the result of many milestones:

  • 1998: Nick Szabo works on ‘bit gold’, a decentralised digital currency
  • 2000: Stefan Konst publishes his theory of cryptographic secured chains
  • 2008: Satoshi Nakamoto (pseudonym) releases a white paper establishing the model for a blockchain
  • 2009: Nakamoto implements the first blockchain as the public ledger for transactions made using Bitcoin

All these actors have something in common: they’re part of the Cypherpunk movement. Directly from this inspiration, the idea of a blockchain as we know it today was born.

What Is Blockchain Technology?

We’ve looked into blockchain itself, but you’ll likely have heard of blockchain technology, so what exactly is it?  

In itself a blockchain database is not widely used outside of very particular applications.  The excitement begins when global networks of otherwise unconnected users, developers, miners, and so on develop and build communities and technologies around certain blockchains.

The purpose of a blockchain is to ensure the flow of information from a sender to their recipient in a decentralized manner.

In short, a blockchain becomes:

  • A distributed digital ledger maintained by a network of computer nodes (backups of all the transactions of a blockchain).
  • A trustless peer-to-peer network.
  • Impossible to erase, adapt or alter.

Blockchain Layers: First Layer, Second Layer & Sidechains

Today, there are several blockchain ‘layers’.

The first layer, called ‘Layer 1’ or ‘L1’, serves as the basis for all transactions when launching a blockchain.

The ‘Layer 2’ or ‘L2’ or second layer is created to overcome problems that cannot be solved on the first layer. For example, Bitcoin does not allow a significant number of transactions per minute. The Lightning Network was created to resolve that issue, and we’ll come back to that later. Second layers were designed as ‘extensions’ of first layers.

And then there are sidechains. These parallel blockchains work independently but can be compatible with other blockchains.

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