A ledger is the public, decentralized record-keeping system that crypto assets run on. It stores data in encrypted files called blocks. These blocks are connected, or chained, to one another, which is why crypto ledgers are known as ‘blockchains’.
The first block in a chain is created when the network goes live. This is known as the genesis block.
Network participants authenticate, verify, and record data onto a block by solving complex mathematical calculations — this is called proof of work or proof of stake. Once the data is verified and recorded onto a block, it can’t be edited, because any subsequent proof of work or proof of stake would invalidate it.
When a block is full and can’t store further data, a new block is mined and added to the chain. A copy of the ledger is stored on several network participants’ devices. These participants are called ‘full nodes’.
The first public blockchain — the Bitcoin blockchain — stores anonymized data about network participants and how much Bitcoin they possess. It also has a record of every legitimate Bitcoin transaction ever made.
But blockchains have applications that go well beyond finance, because they can record and store almost any type of data: product inventories, legal agreements, public records, and even election votes. And since every data point is verified via proof of work or proof of stake and can’t be subsequently altered, tampering and fraud are far more difficult, if not impossible.
- The first known ledgers date back 7,000 years to Mesopotamia (modern-day Iraq). Traders recorded their inventory and expenses on clay tablets which they kept in temples for safekeeping. At the time, temples did double duty: they were places of worship and also places where people stored their valuables, essentially making them the first banks
- Ledgers remained relatively unchanged until Italian mathematician Fra Luca Pacioli popularised double-entry bookkeeping in the 15th century. This system made it possible for debits and credits to be recorded on the same ledger and for different ledgers to be reconciled.
Lorenzo de Medici used double-entry bookkeeping to create the first merchant bank, and it soon became the cornerstone of the banking industry as we know it today
- Bitcoin inventor Satoshi Nakamoto may have brought the blockchain into mainstream consciousness, but the technology dates back to 1991, when Stuart Haber and W, Scott Stornetta described “a cryptographically secured chain of blocks” for the first time.
Haber and Stornetta were working on a system that could irreversibly time-stamp documents, a popular blockchain use case to this day
Want to know more?
- Haber and Stornetta’s academic paper was published three years before the internet entered the public domain. But aside from being a fascinating historical document, it’s remarkably forward-thinking
- If you’d prefer a less technical blockchain explainer, it doesn’t get much simpler than this video
The Metaco view
“The blockchain is a simple but powerful concept: an encrypted, decentralised database that could have profound implications for the world economy and for many aspects of our day-to-day lives — from how we work or run our businesses to the way we participate in civic life.“