Blockchain technology allows a decentralized ledger to act as a database. By having many copies of the authenticated ledger (nodes), there is no single point of failure. Each block of transactions is signed using a cryptographic hash which can be used to authenticate the validity of the blocks. If a node is found to have a different block hash, a consensus among nodes determines which is the correct block, and the bad node is shut out of the network. The only way to hack the system would be to take over at least 50% of the nodes. This establishes trust without the need for a central authority to oversee the transactions.

The Ledger

The ledger can record any number of data including monetary transactions (sender, receiver, date, amount), identifying information such as for tallying votes or the hash of a digital file (NFT), or software code such as for smart contracts. The possibilities are endless once you understand and harness the advantages of decentralization, security and accuracy.

1.0 In the first version of the blockchain transactions were simple such as a transfer of funds.

2.0 Introduced smart contracts to the blockchain. This allowed automated services such as buy/sell orders, and market makers to operate without a middleman.

3.0 Decentralized finance, liquidity pools, healthcare or supply chains will make up what is expected to be the future of blockchains.

Layer 2

Layer 2 blockchains operate as an additional level of computation built on top of the primary blockchain. This takes some of the load off of the primary blockchain. It can result in lower fees, faster speed and improved functionality. An example of a layer 2 blockchain would be the Lightening Network. The Lightening Network pools many Bitcoin transactions together and submits them to the Bitcoin blockchain as just one transaction. This reduces the fees and increases the speed of transactions.

Cross Chain

Some layer 2 blockchains operate on more than one blockchain. These are called cross chain networks. Examples of cross chain networks include Curve (CRV), AAVE, Sushiswap (SUSHI) or Multichain (MULTI). By bridging multiple blockchains together these platforms further decentralize their operations and provide more functionality such as liquidity and reduced fees. Some blockchains also provide converters to allow developers on one blockchain to easily deploy their smart contracts on another blockchain without having to re-write the code.