In simple terms, a blockchain is a type of database that is replicated over a peer-topeer (P2P) network. However, this definition could also apply to other types of distributed databases that have no central database manager, such as ones sold by software vendors like Oracle. So, what makes a blockchain special?
The principal way in which a blockchain is different from other distributed databases is that a blockchain is designed to achieve consistent and reliable agreement over a record of events (e.g., “who owns what”) between independent participants who may have different motivations and objectives.4 Put in a slightly different way, participants in a blockchain network reach consensus about changes to the state of the shared database (i.e., transactions amongst participants5) without needing to trust the integrity of any of the network participants or administrators. The agreement between blockchain network participants over the state of the database is achieved through a consensus mechanism, which ensures that each participant’s view of the shared database matches the view of all other participants. The combination of the consensus mechanism with a specific data structure allows blockchains to solve the so-called ‘double spending’ problem – the same digital file being ‘copy-and-pasted’ and transferred multiple times – without requiring a centralised ledger or party that prevents users from duplicating/spending the same digital file twice. Blockchains can thus facilitate the transfer of assets and other data without needing a trusted central authority.
The elimination of a central third-party administrator brings further benefits. Put simply, participants can independently verify that what they see (i.e., the content of the database at a specific moment in time) is consistent with what every other participant also sees. This ensures that all participants have a consistent view of the shared database state. As a result, any improper alteration of the data (e.g., tampering by a malicious actor) will be immediately detected and rejected by all participants.
This ability of blockchain network participants to independently verify the integrity of the shared database without having to rely on a trusted third party is one of the main value propositions of using a blockchain