What Do Blockchains Really Do?
Blockchains minimize the amount of trust required from any single actor in the system. They do this by distributing trust among different actors in the blockchain as defined by the consensus protocols.
Blockchains have a shared ledger that gives us the absolute truth of the system’s state. It uses mathematics, economics, and game theory to incentivize all parties in the system to reach a “consensus” (i.e., coming to an agreement on a single state of the ledger).
- Consensus algorithms
The blockchain is based on a consensus algorithm where all nodes agree that the transaction is valid.
- Financial transparency
Financial transparency can reduce the need for intermediaries.
- Smart contracts
Smart contracts reduce the need for accountants, lawyers, bankers, etc., as computer code can replace some basic functions. Trust shifts to technology.
- Trust in technology
Trustless blockchains is a transfer of trust to technology from organizations, governments and corporations.
- Confidential transactions
Privacy techniques mask details of transactions while still proving they occurred.
- Decentralized ledger
The ledger acts as a trusted broker when two parties who don’t trust each other want to interact.
- Transparent code
Most blockchains are built on open-source software that is transparent, community-driven code that is open for comment.