Blockchain is a fairly simple technology that requires a fairly complex explanation. To understand blockchain, one must understand its terminology. With thanks to blockchaintechnologies.com, “a free resource to help the world better understand blockchain technologies”, following are a few of the basic definitions:
- Blockchain: A distributed ledger of unchangeable, digitally recorded data. Data of any type can be recorded in a blockchain.Unlike a traditional database housing the same data, a blockchain does not have to rely on a centralized administrator.
- Distributed ledger: A consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, and/or institutions.
- Bitcoin (uppercase): A cryptocurrency, based on the proof-of-work blockchain.
- Cryptocurrency: A form of digital currency based on mathematics, where encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Cryptocurrencies operate independently of a central bank.
- bitcoin (lowercase): The specific collection of technologies used by Bitcoin’s ledger, a particular solution. Note that the currency is itself one of these technologies, as it provides the miners with the incentive to mine.
- Mining: The process (conducted by miners) by which transactions are verified and added to a blockchain. This process of solving cryptographic problems using computing hardware also triggers the release of cryptocurrencies.
It’s applicable that the very definitions of the blockchain technology seem to be circular, as the system is an example of a circular economy system. As Blockchain co-founder Nicolas Cary said in a TechCrunch.com article, “For intelligent assets to create value in the circular economy, the development of an open and global payment protocol is required. The technology behind the Bitcoin blockchain has the potential to enable the billions of internet devices that negotiate with each other to unleash market forces, to bring down the costs of goods and services for all.”