Digitalisation, e-commerce, and the emergence of e-money in our daily lives made the notion of non-physical currency quite common. Since the early 2000s, the idea of a digital payment system and a digital currency native to the Internet has become very attractive.
What is a blockchain? Simply put, it is a data ledger (think of an accounting ledger, which records every ‘in’ and ‘out’ transaction). The ledger is distributed, which means that many copies of the same ledger exist on computers worldwide. It is also protected by strong cryptography to protect it from malicious actors attempting to change any information within the blockchain.
How was this technology born? In 1992, W. Scott Stornetta and Stuart Haber presented the idea of blocks of digital data that are chained by cryptography to prevent tampering with time-stamped documents. By 2008, an anonymous person known by the name of Satoshi Nakamoto, proposed a new payment system to a group of prominent cryptographers and mathematicians through a cyberpunk mailing list.
The proposal, called Bitcoin: Peer-to-peer electronic payment system, was based on an online distributed ledger - verified by cryptography - functioning through a ‘proof-of-work’ consensus mechanism - the same technology that was being used to tackle spam. The term blockchain was not mentioned in the proposal; it was coined later on, with reference to Stornetta and Haber’s proposal.
How is new data added to a blockchain? Every computer (or node) synchronises the data through a consensus-based mechanism. Once data is added, it cannot be added or altered on a blockchain unless there is a consensus.
There are many types of blockchain databases. The main types are open blockchains, and closed or private blockchains.