What is blockchain?

A blockchain is a collection of time-stamped records that are linked together. These records are referred to as blocks, and the connections between them form the chain. Each block encodes information, and the collection of blocks is a type of ledger.

The blockchain offers a decentralized, peer-to-peer structure; blockchain security is achieved through that structure, which requires the agreement of the parties that maintain the blockchain to unanimously agree on making additions to the chain. That is a departure from conventional processes underlying transactions involving a third party, such as a clearing house that completes settlement of stock trades.

What is blockchain used for?

Bitcoin’s 2009 launch was the first blockchain cryptocurrency introduced to the public. Many other digital currencies have subsequently been introduced over the past decade, and today blockchains are still primarily used in cryptocurrency transactions.

However, other applications of the technology are gaining some traction. One is the use of so-called “smart contracts,” which allow the stipulations in a contract to execute automatically if certain conditions are met. These digital contracts are used in the crypto world and have also been picked up by other industries. For example, a payment could be automatically triggered once a shipment is delivered.

Companies have had success using blockchains to track product movements through the supply chain as well.

Is the blockchain safe?

Blockchain advocates contend that it is the technology of the future due to its promise of efficient, transparent and cost-effective operations. The elimination of a central gatekeeper and the automated nature of its structure arguably make these goals achievable.

Others are skeptical of the technology because of the security vulnerabilities in blockchains. This follows instances in which hundreds of millions of dollars were lost when hackers gained access to blockchain-based cryptocurrency exchanges. Supporters counter that hackers exploited vulnerabilities in systems linked to the blockchain, rather than the blockchain itself.

The skeptics may be losing ground, however, as even highly regulated companies such as financial firms, including Nasdaq, are adopting blockchain technology.

The bottom line

Blockchain is a technology that creates permanent data records using a decentralized peer-to-peer structure. While blockchain is perhaps best known as the framework underpinning the cryptocurrency markets, other use cases include tracking supply chains and automating other processes across an array of industries.

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