The three Concepts used to explain the Foundation of Blockchain are…
- Distributed Network
- Public Ledger
A distributed ledger is a database that is shared across and managed by many different institutions or entities. A distributed ledger might be maintained by multiple, independent parties who do not need to trust each other, because the area of trust has become much larger. The blockchain is an example of a distributed ledger technology which can provide secure online transactions without the need for a centralized authority or third party intermediary (e.g., banks).
Cryptography refers to techniques used to encrypt information to make it unreadable except for those possessing special knowledge, usually referred to as “the key”. Cryptography is a powerful tool of information technology, and has been used since ancient times. It is also the basis for digital currencies such as bitcoin and ethereum.
Public ledger refers to the use of an electronic accounting method to record transactions between two or more agents that are neither directly involved with the transaction nor privy to its content. The blockchain, a digital public ledger, records all transactions in chronological order on blocks of distributed data in an immutable way without any centralized authority or intermediary that can single-handedly modify data. A blockchain is regularly updated whenever a user creates a new transaction event, which triggers a new block to be created and included in the blockchain. A blockchain thus allows for a public audit in the case of any unauthorized change to data.
Background of the 3 Blockchain concepts
The concept of blockchain was introduced by Satoshi Nakamoto in his paper “Bitcoin: A Peer-to-Peer Electronic Cash System” (PDF), published in 2008. In this article, Nakamoto presents blockchain as a database that can be programmed to record transactions between two parties efficiently and in a verifiable and permanent fashion without requiring trusted third parties. The receiver of funds can spend them again, whereas the sender does not have access to this new money until he or she receives it.
The blockchain is a public ledger, which means anyone can view the transactions on the blockchain. However, the validation of transactions and the confirmation of new blocks in a blockchain occurs via a consensus mechanism. When there are multiple nodes (computers) on a network each with its own copy of the ledger and its own set of data to add or validate, consensus becomes crucial. Blockchains that use Proof-of-Work (PoW) as their underlying consensus mechanism utilize mining to establish consensus. For example, Bitcoin uses PoW to establish consensus on new blocks added to its blockchain.
A key advantage of blockchain technology is fast processing times when compared to centralized databases, as there are no intermediaries between processing parties slowing down transaction times.