Blockchain and the idea of distributed ledger technology offer several distinct advantages.
—Blockchain is based on a peer-to-peer network design—where each participant, or node, in the network is equal to all others. This means no controlling entity can unduly influence the system. No central authority is required. The rules and behaviors of the network are embedded within the software protocol. The larger the network grows, the more standardized rules and behaviors are propagated, making it increasingly unlikely that any one actor, or multiple actors, could maliciously change the system’s behavior.
—Each node on the network contains a complete copy of the entire ledger, from the first block created—the genesis block—to the most recent one. In the Bitcoin example, its ledger holds every transaction ever done on every participating node for the last seven years. This distributed approach increases the overall resiliency and security of the system. If any node or collection of nodes goes offline, the system will continue to function. An attempt to defraud the system by changing the ledger to a different truth would require a majority of all copies of the ledger to be compromised to convince the network of that different truth.
3- Distributed consensus
—The design contains a radical innovation that solved the doublespending problem through a mechanism called “distributed network consensus.” This mechanism enables the entire network to reach agreement about which blocks of transactions are valid and which ones are not, enabling peer-to-peer value exchange without involving a trusted third party or intermediary for that consensus. There are different models for distributed network consensus, for example, proof of work—employed by Bitcoin—or proof of stake.
4- Tamper proof (immutability)
—Each transaction must be digitally signed using a participant’s private encryption key, which is kept only by the signer. The digital signature on a transaction can be validated by a signer’s corresponding public key. Public keys, as the name implies, are designed to be shared with anyone. This ensures a transaction can only be created by the holder of a specific private key. Once a transaction signature is validated, a transaction is cryptographically bound, through a mathematical algorithm called “hash.” The hash function creates a unique digital fingerprint for the transaction. Transactions are then hashed with other transactions into a block. When a block of transactions has been accepted by the network, it is cryptographically bound to the ledger and distributed to all the nodes on the network.
—The distributed ledger contains a full history of every transaction, enabling traceability of each asset—digital coin or other asset tracked by the leger—back to its origin. With the distributed ledger published openly to every node on the network, it is easy for a network participant to unambiguously determine the current and past states of assets within the ledger. This creates a highly available, auditable trail of activities for each asset that has contributed to the current system state.