Frequently asked questions

A blockchain is a shared digital record book that stores information across many computers at the same time. Rather than being held in a single database controlled by one organisation, copies of the record exist on every participating computer (known as a node) in the network. When someone adds new information, all copies update simultaneously. Because every entry references the one before it using cryptographic techniques, altering any past record would require changing every subsequent entry across all nodes, which is computationally impractical on large networks. This design makes blockchains particularly well-suited for applications where transparency and data integrity matter.

The foundational concepts behind blockchain can be traced back to cryptographic research in the early 1990s. Stuart Haber and W. Scott Stornetta published work on cryptographically secured chains of blocks in 1991. However, blockchain technology as it is commonly understood today was first implemented in 2008 by a person or group writing under the pseudonym Satoshi Nakamoto. The accompanying whitepaper described a peer-to-peer electronic cash system, and the network went live in January 2009. Since then, the technology has evolved considerably, with numerous independent blockchain protocols developed for a wide variety of purposes beyond digital currency.

A public blockchain is open to anyone. Any person can join the network, view the ledger, and participate in the consensus process. Bitcoin and Ethereum are well-known examples of public blockchains. A private blockchain, by contrast, restricts participation to pre-approved entities. An organisation or consortium controls who may read, write, or validate data on the network. Private blockchains are often used in enterprise settings where data confidentiality and regulatory compliance are priorities. There are also hybrid models, sometimes called consortium blockchains, where a defined group of organisations collectively manages the network while certain data may remain publicly accessible.

Decentralisation refers to the distribution of control and decision-making across multiple participants rather than concentrating it in a single authority. In a decentralised blockchain, no single entity has unilateral power over the network. Instead, many independent nodes maintain copies of the ledger and collectively validate new transactions through a consensus mechanism. The degree of decentralisation varies between different blockchain protocols and depends on factors including the number of nodes, the geographic distribution of those nodes, and the governance model used by the network. Decentralisation is often discussed as a spectrum rather than a binary state.

No. Bitcoin is a specific digital currency that runs on a blockchain, but blockchain itself is the underlying technology. Think of blockchain as the infrastructure and Bitcoin as one application built on that infrastructure. Many other blockchain networks exist, each designed for different purposes. Ethereum, for example, was designed to support programmable smart contracts. Other networks focus on supply chain tracking, identity management, or interoperability between different blockchains. While Bitcoin introduced blockchain technology to a wider audience, the two terms are not interchangeable.

A consensus mechanism is a protocol through which nodes on a blockchain network agree on the current state of the ledger. Because there is no central authority to declare which transactions are valid, the network needs a systematic way for all participants to arrive at the same conclusion. Proof of Work (PoW) requires participants to solve computationally intensive puzzles to validate transactions. Proof of Stake (PoS) selects validators based on the quantity of tokens they have committed as collateral. Other mechanisms include Delegated Proof of Stake (DPoS), Proof of Authority (PoA), and Byzantine Fault Tolerance (BFT) variants. Each approach involves trade-offs between energy consumption, processing speed, decentralisation, and security assumptions.

A smart contract is a programme stored on a blockchain that automatically executes predefined actions when certain conditions are met. The term was coined by computer scientist Nick Szabo in the 1990s, though practical implementations became widespread with the launch of Ethereum in 2015. Smart contracts are written in programming languages such as Solidity (for Ethereum) and are deployed to the blockchain where they become immutable. Once deployed, anyone can interact with the contract according to its coded rules. Common applications include automated escrow arrangements, token distribution, and governance voting. It is important to understand that smart contracts execute exactly as coded, which means bugs or vulnerabilities in the code can lead to unintended outcomes. Auditing smart contract code before deployment is considered best practice.

A cryptographic hash function is a mathematical algorithm that takes an input of any size and produces a fixed-size output (called a hash or digest). Key properties include: it is deterministic (the same input always produces the same output), it is computationally efficient to calculate, it is practically impossible to reverse (you cannot derive the input from the output), and even a tiny change to the input produces a drastically different output. In blockchain, hash functions are used to link blocks together and verify data integrity. The most commonly referenced hash function in blockchain contexts is SHA-256, used by the Bitcoin network. Ethereum uses Keccak-256. These functions are fundamental building blocks of blockchain security.

A Layer 2 solution is a secondary framework or protocol built on top of an existing blockchain (the Layer 1) to improve its performance, particularly in terms of transaction throughput and cost. The underlying Layer 1 blockchain handles final settlement and security, while the Layer 2 processes transactions off the main chain before periodically submitting compressed summaries back to Layer 1. Common Layer 2 approaches include rollups (both optimistic and zero-knowledge variants), state channels, and sidechains. Each approach has different security assumptions and performance characteristics. Layer 2 development is an active area of research, particularly within the Ethereum ecosystem, where high demand has historically led to network congestion.

Web3 is a term used to describe a vision for a more decentralised internet, where applications and services are built on blockchain and peer-to-peer protocols rather than relying on centralised servers and platforms. Proponents suggest that Web3 could give users greater control over their data and digital identities. The concept contrasts with Web 2.0, which is characterised by centralised platforms that aggregate user data. Web3 encompasses technologies such as decentralised applications (dApps), decentralised autonomous organisations (DAOs), and decentralised storage systems. It is important to note that Web3 remains an evolving concept with ongoing debates about its practicality, scalability, and the degree to which it can deliver on its stated goals.

A decentralised application (dApp) is a software application that runs on a distributed network rather than a single server. In the blockchain context, dApps typically interact with smart contracts deployed on a blockchain to execute their core logic. The front-end interface may look similar to a traditional web application, but the back-end operations are processed by the blockchain network. This architecture means that dApps can operate without a single point of failure and without being controlled by a single entity. However, dApps may face challenges such as slower processing speeds compared to centralised applications, more complex user experiences, and dependence on the underlying blockchain's capacity and fee structure.

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