How blockchain works

AuthorBellia, M.; Kounelis, I.; Anderberg, A.; Calès, L.; Andonova, E.; Pólvora, A.; Petracco Giudici, M.; Nascimento, S.; Inamorato dos Santos, A.; Rossetti, F.; Papanagiotou, E.; Nai Fovino, I.; Spirito, L.; Sobolewski, M.
13 1. How blockchain works
1.1. What is a blockchain?
Blockchain and other distributed ledger
technologies (DLTs) are technologies enabling
parties with no par ticular trust in each other
to exchange any type of digit al data on a peer-
to-peer basis with fewer or no thir d parties or
intermediaries. Data could represent , for instance,
money, insurance policies, contracts, land titles,
medical records, birth a nd marriage certif‌icates,
buying and selling goods and ser vices or any other
type of transac tion or asset that can be translated
into a digital form.
To be clear on the terminology, blockchain is part
of the broader family of DLTs. DLTs are particular
types of databases in which data is recorded,
shared and synchronised acr oss a distributed
network of computers or participants. Blockchain
technology is a subset of DLTs employing
cryptographic techniques to record and synchronise
data in ‘chains of blocks’. The dif‌ference concerns
the way data is distributed, verif‌ie d and registered
(the dif‌ference between public /private and
permissionless/permissioned is given below).
In short, all ty pes of blockchain are DLTs but not
all DLTs are blockchains. For the sake of simplicity,
this report will mainly use the ter ms blockchain
or blockchains, and will distinguish between DLTs
where necessary.
Blockchain is a database (ledg er) operating
in a distributed networ k of multiple nodes
or computers that keeps t rack of data
transactions (Wright and De Filippi, 2015).
It is so called because of the par ticular way
transactions are re corded and verif‌ied between
parties (Figure 1). A transac tion with party B is
requested by party A, such as the transfer of
money, setting up a contract , or sharing records.
This transaction is broadc ast to a distributed
network of nodes or computers which will
validate it according to an agreed set of rule s
(a ‘consensus’ mechanism). When validated,
this transaction will be bu ndled with others into
a new ‘block’ and added t o the blockchain.
The whole process ensures that each block is
created in a way that irrefutably link s it to
the previous one and ‘t he next one, thereby
forming a chain of blocks or blockchain.
The unique record that forms a blockchain is
shared by each node or computer in the n etwork
and is constantly updated and synchronised.
As a database or ledger, ultimately a blockchain
stores the records of all tra nsactions ever
executed across a networ k.
A blockchain is
run through
a distributed network
of participants who
do not necessarily
trust each other
but follow the same
rules (consensus).

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