What is blockchain?

Blockchain (from the English ‘block chain’, ‘chain of blocks’) is a distributed database that anyone can access. It is also called the ‘distributed ledger technology’, since there is no central authority or regulator that could govern the blockchain at its own discretion.

Traditional databases are stored on servers dedicated to them, which are controlled by the organization that owns the database. Blockchain is not controlled by any single person or organization, and its security is provided by its distributed architecture. If part of the computers hosting the blockchain is hacked, this will in no way affect the operation of the entire system, something unthinkable for a traditional database.

Theoretically, blockchain can store any data—from monetary transactions to the complete collection of world literature. For data to enter the blockchain, it must be verified, i.e., checked for authenticity. In the case of Bitcoin and monetary transfers, this is done by the so-called miners. After verifying a transaction for validity, they record it in a block, after which it remains in the blockchain forever, and anyone can verify its authenticity. At the same time, any such transaction must receive several confirmations from independent sources before it is considered valid.

Blockchain can be stored anywhere and is stored everywhere. There are special nodes (nodes) in the network that store the full up-to-date version of the blockchain, while other nodes simply query them when needed to verify something. The full version of the blockchain can be downloaded from open sources, in which case it will also be stored on your device.

Blockchain is often compared to the Internet due to its ability to change the world. Today, people need to maintain a large staff of lawyers, notaries, regulators, bankers and other bureaucrats to certify and confirm events, for example, salary payments or the sale of a flat. Blockchain technology can perform all of their work completely automatically, thereby eliminating the very need for intermediaries.

Blockchain technology is used in virtually every cryptocurrency, enabling its operation. It is also being actively integrated into banking systems, property registration systems and various state registries, supply chain management, and into areas such as digital identity, energy, voting, gaming, the Internet of Things, etc.

Open blockchain is accessible to all, while private is for selected individuals only. There can be many different blockchains, some of which are open, others closed. They cannot interact yet, because in each blockchain you can implement your own rules, and the rules of one blockchain can contradict the rules of another.

To solve this problem, a variety of options have been proposed. The most popular of them are the so-called sidechains (side chains, ‘side chains’) — special blockchains. The latter are needed solely to connect one blockchain to another, bypassing possible conflicts between their rules.