Blockchain 101 - Ledgers

Walter Pinson, Smashing Boxes President & COO and Lindsey Morgan, Innovation Fellow
June 7, 2020

Throughout the past decade, blockchain technology has gone from a new financial experiment with a cult following, to a potential revolutionizer of data management. As blockchain has gained more and more traction, many people still struggle to understand: what exactly is blockchain? And why would anyone want to use it? In this series, we answer those very questions and provide the foundation needed to understand blockchain and cryptocurrency.

Blockchain at its core is a type of ledger, or database. It is a way to store information. Before we get into the details about the unique characteristics of blockchain, let’s first, take a step back and understand the various types of ledgers.

  1. Distributed vs Localized: Like collaborating on an online Google Sheet, multiple users can share a copy of a distributed ledger. Conversely, a localized ledger is saved on only one device, like a Microsoft Excel file saved on your desktop.
  1. Decentralized vs Centralized: A decentralized ledger has no central owner or single point of failure. In comparison, a centralized ledger, like a bank account balance, has one owner (the bank).
  1. Public vs Private: A private ledger is an invitation-only ledger. You must be given permission to view or edit it. Alternatively, anyone can access a public ledger.
  1. Peer-to-Peer Network vs Central Network: In a central network, all data is stored on one central server. Think about your favorite website. When that website’s server goes down, you are unable to access it. In contrast, a peer-to-peer network has data stored on multiple devices. If one server fails, the data is still accessible. 
  1. Tokenized vs tokenless: Tokenized ledgers require cryptocurrency coins to operate. The ledgers are constructed around an incentive system that provides coins to those who operate the network. Tokenless ledgers do not have such systems in place.
  1. Immutable vs mutable: Immutable ledgers are unable to be edited over time. Mutable ledgers can be changed.
Types of Ledgers
Figure 1: Types of Ledgers

Public blockchains are distributed, decentralized, public, on a peer-to-peer network, and immutable. These unique traits are what make blockchains innovative.

Distributed ledger examples
Figure 2: Distributed Ledger Examples

In the next section of this series we will dive deeper into how a blockchain really works. Click here to continue to the next section of Blockchain 101 – Blockchain.

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