A Blockchain is the data structure that underpins Distributed Ledger Technology. Thanks to its cryptographic process, a Blockchain allows trust-based transactions between any two participants to take place, without physical contact and without either side knowing the other’s identity.
A Blockchain is built on the following principles:
1. Shared Ledger
After verification, all value transfers are recorded permanently, in a way that cannot be changed, in the form of blocks with a unique time stamp. These chronological chains of evidence, known as Blockchains, are deposited with each market participant and allow the ownership structure to be traced for any given time.
2. Smart Contracts
In addition to the transaction itself, the Blockchain contains details of associated tangible and intangible items, as well as the necessary commercial rules for the transaction. This involves translating them into machine-readable program code. In the context of the transaction, they are then automatically carried out, provided that the situational requirements are met.
Due to the cryptographic process that underpins the technology, transactions and sensitive personal data of the trading partners can be handled separately from each other.
4. Verification by Consensus
The transactions must be acknowledged by a specified quorum of market participants acting independently from one another. As a rule, this only takes a few minutes.
How exactly does a Blockchain work?
Blockchains are deposited in a cloud that is accessible to all network members with the right permission, allowing peer-to-peer transactions to take place. Specifically, this works as follows:
● Once two trading parties have reached an agreement, a transaction (such as a payment) is triggered.
● A block that contains this transaction is created.
● The block is then communicated to all members of the network.
● A pool of network members then verifies the transaction.
● As soon as the transaction has been verified by a quorum of network members (the number required for a quorum having been agreed in advance), the block can be inserted into the Blockchain. This creates a permanent, unchangeable record of the transaction.
● This creates a complete and valid record of the time of the transaction between the two trading parties.
A Blockchain provides far more than just a decentralised and secure payment solution. As all transactions are recorded in full, it allows the current ownership status to be viewed at any time, while automatic confirmation of adherence to rules is also always available. I will set out possible future developments of a Blockchain, including initiatives that are currently ongoing, in an upcoming blog article.