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Created on 25.04.2022

Blockchain: how this technology works and what it enables

Blockchain is much more than just the technology behind cryptocurrencies. We explain what blockchain is, who invented it and what it can be used for.

What exactly is a blockchain?

A blockchain is a type of database for anything that has a digital value. As it’s name suggests, it can be thought of as a chain of blocks. In short, blockchain is a decentralized database jointly used by a number of participants; a list of data records that can be continually expanded using individual blocks. Each chain starts with a “genesis block” and further blocks are added using a cryptographic encryption process. Each blockchain is stored on several computers; each computer (or node) in the network has a complete copy of the blockchain and is tasked with checking and documenting transactions. Blockchains enable transparent, unbroken, unalterable and traceable exchanges of information in real time that are practically impossible to falsify − and all this without a central controlling authority.

Who invented blockchain?

The founding fathers of blockchain are Scott Stornetta and Stuart Haber. Doctors of computer science and physics respectively, they came up with the original form of the blockchain in 1991. They were the first to have the idea of cryptographically encrypting and chaining documents together in data blocks in such a way as to resolve the problem of securely authenticating documents. When discussing the invention of blockchain, a name that keeps coming up is Satoshi Nakamoto − a pseudonym for someone whose true identity remains a mystery to this day. In his 2009 bitcoin white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System”, he brought the ideas of bitcoin and blockchain together for the first time. The two founding fathers of blockchain, Stornetta and Haber, were both cited in this paper.

How did blockchain get off the ground?

Blockchain technology gained prominence through cryptocurrencies such as bitcoin. Today, however, it is oiling the wheels of very many industries, including banking, insurance, logistics, the food industry and even the art world. That’s because blockchain is first and foremost suited to any processes in which data has to be secured, certified and distributed.

Everything you can do with blockchain: three examples

Example 1: transport

Logistics companies can use blockchain technologies to track the transportation of containers around the world. By recording the information for individual consignments in the blockchain, the companies can achieve comprehensive control over their shipments − and not just in terms of loading, shipping and customs duties, but also the related payment transactions.

Example 2: food

Many standards have to be met in the food industry, for example maintaining the cold chain for products requiring refrigeration. The processes and details related to these standards can be documented and traced using the blockchain − from the seed right through to the product on the shelf in the local supermarket.

Example 3: art

NFTs are causing quite a storm in the art world at the moment. NFT stands for “non-fungible token” which means an asset or unit of value that cannot be replaced with something else. NFTs are artworks that only exist digitally, they are unique and cannot be replicated and are usually bought using cryptocurrency. All related transactions are noted in a blockchain. That means the digital image cannot be forged. The process behind this is similar to that of producing a certificate of authenticity.

Source: unternehmer.de/lexikon/finanz-lexikon/token

So what are the advantages of blockchain technology?

  • Blockchain increases transparency as every transaction is visible to every member in the network. That creates trust.
  • Blockchain is considered forgery-proof because information cannot be altered retrospectively.
  • There are no intermediaries with blockchain, as contact always takes place directly between the interacting parties.
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