Blockchain basics

Put simply, blockchain technology generates a chain of transaction blocks. A transaction is, for example, a payment process from A to B. Each new block is assembled from the locked transaction data plus the cryptographic key of the previous block. That means that as soon as a single number in one of the locked transactions is changed, the blocks no longer go together.

That sounds very technical, but ultimately it simply guarantees that data cannot be manipulated later on and that each transaction can only take place once. The transactions themselves are transparent and accessible although the people taking part in the transaction remain anonymous. We can draw a distinction between public blockchains—where anyone can inspect the transactions—and permission-based blockchains which only authorized participants have access to.

Blockchains—like the Bitcoin blockchain—are managed completely decentrally. That means that there is no central server, but instead umpteen thousand copies on computers all over the world. As a result, it is impossible to corrupt the system too. Besides, these backup copies are operated by volunteers or 'miners' who receive financial incentives for them in the form of Bitcoins.

Programmable smart contracts were also possible with the Bitcoin alternative, Ethereum's, blockchain technology, that is, mini contracts on the basis of if/then scenarios that trigger automatic actions when specific preconditions are met.

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