Blockchain
Quick Answer
Blockchain is a type of distributed digital ledger in which validated transactions or records are grouped into blocks and cryptographically linked to earlier blocks. Copies of the ledger are maintained across participating computers, and established validation and consensus rules determine how new information is added to the chain.
How does Blockchain work?
A blockchain records information in a sequence of linked blocks.
At a simplified level, the process can involve:
A transaction or record is submitted.
Network participants or designated validators check it according to the system's rules.
Validated transactions are grouped into a block.
The new block is cryptographically linked to the previous block.
The updated ledger is replicated across participating nodes.
NIST defines blockchain as a distributed digital ledger of cryptographically signed transactions grouped into blocks. Each block is linked to the previous one after validation and a consensus decision.
Because the blocks are cryptographically connected, changing data in an earlier block would affect the links to subsequent blocks. This makes unauthorised historical changes easier to detect and, depending on the blockchain's structure, increasingly difficult to carry out.
Key features of Blockchain
Several characteristics are commonly associated with blockchain systems:
Distributed ledger: Copies of the ledger can be maintained across multiple computers or nodes rather than in one central repository.
Blocks: Transactions or other records are grouped into data structures called blocks.
Cryptographic linking: Each block contains information that links it mathematically to the previous block.
Validation: Transactions generally have to satisfy the network's rules before being recorded.
Consensus: Participating systems use defined mechanisms or rules to agree on ledger updates.
Tamper evidence: Altering historical data can break the cryptographic links between blocks, making changes detectable.
Different network structures: Blockchains can differ significantly in who is permitted to participate, validate transactions or access data.
The broader concept of distributed ledger technology (DLT) refers to systems that allow computers in different locations to propose and validate transactions and synchronise records across a network. Blockchain is one form of distributed-ledger architecture.
Simple Blockchain example
Imagine a simplified blockchain containing three blocks:
Block 1: Transaction A
Block 2: Transaction B + cryptographic reference to Block 1
Block 3: Transaction C + cryptographic reference to Block 2
Because Block 3 depends cryptographically on Block 2, and Block 2 depends on Block 1, changing information in Block 1 would change its cryptographic representation.
The links in later blocks would no longer match.
A network following its validation rules could therefore detect that the earlier record had been altered.
This simplified example demonstrates the basic idea of a cryptographically linked chain. Real blockchain systems use substantially more complex data structures, consensus mechanisms and security controls.
Potential benefits and uses
Blockchain technology can be used for more than cryptocurrencies.
Possible applications include:
recording digital-asset transactions;
maintaining shared transaction records;
supply-chain tracking;
digital identity systems;
asset registries;
record management;
tokenised assets;
financial-market infrastructure.
NIST notes applications including manufacturing supply chains, data registries, digital identification and records management.
In financial systems, distributed ledgers may allow multiple participants to maintain synchronised records without relying on a single traditional database administrator for every update.
However, whether blockchain provides an advantage depends on the particular problem being solved.
Risks, limitations and common misconceptions
A common misconception is that blockchain and cryptocurrency are the same thing.
They are not.
Blockchain is the underlying ledger technology used by many cryptocurrency systems, while a cryptocurrency is a digital asset or payment system that may use blockchain technology. NIST explicitly notes that blockchain supports many cryptocurrency systems but can also be applied elsewhere.
Another misconception is that every blockchain is completely decentralised. Network governance and validator structures vary widely. Some systems may be highly distributed, while others restrict participation to selected organisations.
Blockchain should also not be described as absolutely immutable. A more precise description is tamper-evident and tamper-resistant. NIST uses these terms because changes can theoretically occur under certain conditions, even though cryptographic linking and network rules are designed to make unauthorised alteration difficult or detectable.
Other limitations can include:
scalability constraints;
transaction-processing delays;
governance risks;
software vulnerabilities;
private-key security risks;
operational complexity;
varying energy or infrastructure requirements depending on the consensus mechanism.
Using blockchain therefore does not automatically make a system secure, efficient or appropriate for every application.