How Blockchain Works

Financial Technology and Data

Wayne Johnson

Jul 26, 2018

Understanding how blockchain works does not need to be a mystery. Information in a blockchain is recorded in an unchangeable electronic “block”; each block is linked to the previous block, which publicly stores a chronological file of all transactions. It is possible for every participant on the blockchain to view every transaction that has ever occurred on the blockchain network. Developers work in their own “trees” when implementing changes or new features and submit pull requests to the core development team when they believe the bug is fixed or the new capability is ready to go live. This programming code is based on the Open Source Initiative (OSI). Any developer may review the code, which is stored in a secure third-party repository at GitHub, a website for developers to collaborate on open-source and private coding projects.


However, potential changes (i.e bug fixes or enhancements) to the code must be submitted to the core development team who are the ultimate decision makers. In most cases, if the requested change is simple in nature, the development team simply integrates it into the code. If it is more complicated or has potentially wide-ranging implications, the submitter will be asked to start a discussion with the bitcoin mailing list. For critical vulnerabilities in the bitcoin code, the developer is asked to send an encrypted email to the core development team to minimize the risk of disruptive or illegal behavior on the bitcoin network. Sidechains are a proprietary or customized blockchain architecture that participants have agreed to use and program for specific functions that are not available or open to the public. The sidechains may maintain distinct and separate network characteristics, economic models, mining processes, and assets that can be transferred (i.e., mortgage, stock, etc.).

One privately funded company, Blockstream, has developed a way for developers to “peg,” or attach, sidechains to the Bitcoin blockchain to enable two-asset mobility. This development could make the Bitcoin Blockchain rise above alternative virtual currencies by becoming the central spine for all crypto networks, and enable a more seamless and efficient transferal of important legal documents and assets such as contracts, mortgages, and stock. Sidechains also enable developers to test new ideas and economic incentive models in a closed environment, potentially speeding up the rate of innovation and limiting the risk of adverse changes to the Bitcoin network. With a sidechain, owners and investors could have full visibility into historical and current ownership of digital and real assets, and the process of settlement would be near real-time. Assets would also be given “digital identities,” similar to a serial number, which could be exchanged between buyer and seller when a transaction takes place.

With the security it offers, the historical data it captures and the potential to disrupt well-established supply chains there are a lot of interested parties keeping a close watch on its development. In fact, numerous consortiums dedicated to advancing Blockchain development and solutions are popping up everywhere. These include IBM Hyperledger ( 130+ banking, finance, supply chain, manufacturing, and technology leaders) that is working on eight ongoing Blockchain-based distributed ledger products targeting several verticals; Enterprise Ethereum Alliance (300 member companies from large and small organizations) that is building technology and decentralized applications on the Ethereum Blockchain; and R3(100+ financial institutions, regulators, and technology firms) that is leading the research and development of Blockchain database usage in the financial system.

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Wayne Johnson

Wayne Johnson worked on Wall Street for over twenty years and is now a senior adviser to two crypto currency, one payment service provider and a nationally recognized private equity firm.
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