Blockchain
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Description
Blockchain is a decentralized ledger, whose main characteristics are its immutability and security through cryptography. In other words, a network of nodes (blockchain users), without any central server, share a database. Once a piece of information is added to it, there is no way to alter it: the blockchain is cryptographically secure, i.e. trust comes from cryptography, not a trusted central authority.
Working principles
Blockchain is made of well-known technologies used together in a specific and new way: peer-to-peer network, hash functions and asymmetric cryptography.
- Peer-to-peer network: instead of a central server that clients connect to, users are interconnected without any intermediary. A popular use is the torrent file sharing system.
- Hash function: a function that, for any input (text, file, etc.), yields a hash (or fingerprint) of this input, usually in the form of a fixed-length series of characters. Such functions are easy to compute, but extremely hard to invert, i.e. to reconstruct the input from the output. This is mainly used for integrity check: the slightest alteration of the input changes the output altogether.
- Asymmetric (or public-key) cryptography: a cryptographic system involving a public and a private key. Data encrypted with the public key (available to everyone) becomes unreadable by anyone without the private key. Data encrypted with the private (secret) key is readable by everyone (thanks to the public key), but this proves the person who encrypted it is in possession of the private key. This mechanism is used for confidentiality and authenticity.
A blockchain can be public, permissioned (there is a control over who can participate) or completely private. The main difficulty, especially with public blockchains, is the consensus mechanism, i.e. the way to make consistent additions to the chain across all legitimate participants. Several solutions exist, among which are the proof of work (making unlegitimate changes to the blockchain requires the attacker to have more than half of the processing power of the entire network) and proof of stake (instead of processing power, wealth is used to secure the chain).
Main blockchains
The first use of blockchain has been Bitcoin, created in 2009, secured by proof of work. It is a cryptocurrency: it can be exchanged between accounts without any intermediary, and once a transaction is added to the blockchain there is no way to change or remove it.
More recently, in 2015, Ethereum has been created: a public blockchain with a built-in cryptocurrency (Ether), designed for the use of smart contracts. These are programs on the blockchain automatically executed on certain conditions, trust arising from the code. These smart contracts have a wide variety of applications, notably representing non-fungible tokens (unlike money, they are distinguishable, unique). A playful and yet educative example are CryptoKitties: representations of unique cats that can be traded and used for breeding. Once a smart contract is created on the blockchain, there is no way to avoid or change its programmed behaviour.
Bitcoin and Ethereum are the two main public blockchains, but there are others, that can be used in a permissioned or private manner. Such an example is Hyperledger, a set of open source blockchains and tools. It is managed by the Linux Foundation, with the support of major companies such as IBM.
Challenges
The blockchain technology comes with many challenges, be it for public or corporate use. The main ones are speed (e.g. a transaction can take several minutes or hours to be confirmed), scalability (processing a large number of operations on the blockchain) and, in the case of public chains, governance.