| Blockchaintechnology is based on an innovative use of cryptography and has attracted a lot of attentiondue to its characteristics, which include: | The creation of data records that are permanent (i.e. cannot be changed or deleted);
The ability to identify the time and origin of every entry in a Blockchain;
The collaborative potential providing access to data in a Blockchain to multiple participants;
The guaranteed implementation of smart contracts (programmes) that automatically execute once a set of agreed conditions are met. |
| UN/CEFACT | The United Nations Centre for Trade Facilitation and Electronic Business is a subsidiary, intergovernmental body of the United Nations Economic Commission for Europe (UNECE) which serves as a focal point within the United Nations Economic and Social Council for trade facilitation recommendations and electronic business standards. |
| Block | Data that is appended to the ledger after validation. Once a block is written to the chain, it cannot be changed or deleted without replacing all subsequent blocks. |
| Consensus | An important characteristic of Blockchainsystems which allows users to know that transactions have been executed and to evaluate the trustworthiness of the information about and in those transactions (for example, the date/time of execution and content). In the case of public Blockchains, the umpire that decides consensus is the society of all nodes that choose to participate. In the case of private Blockchains, the umpire is the consortium of nodes given permission to create consensus. There will be more about the different ways in which consensus can be reached in the text below. |
| Hash | The result of mathematical operations carried out on the numeric representation of data—all data in a computer consists of numbers that are deciphered in order to create the words and images you see on a screen. This result has a fixed size and is a unique cryptographic fingerprint of the underlying data. A hash is a one-way function; this means that given the data, it is easy to verify that the hash is the correct one for that data. This is done by performing the pre-defined mathematical operations on the data that supposedly created the hash—if the result is the same, the data is the same. This is a key feature because it allows users to quickly confirm that no changes, at all, have been made. For example, even an additional space or empty line in a text would change its hash. At the same time, and this is what makes it aone-way function, it is almost impossible to recreatethe original data if all one has is the hash (i.e. reverse engineer it). |
| Node | A system that hosts a full copy of the Blockchainledger. In some Blockchains, such as Bitcoin and Ethereum, all nodes participate in the consensus process, in others it may be only be selected nodes. |
| On-chain transaction | An automated procedure that creates or updates the status of a Blockchainasset in the Blockchaindatabase by appending new data to the ledger. Examples include digital asset exchange, or execution of an automated business process. |
| Validation | Work performed by nodes, in parallel, that verifies transactions using a consensus algorithm. Different networks may use different consensus algorithms. When mutual validation results in a consensus, then the nodes all commit (record) the verified transactions onto their Blockchainas a new block. |
| How blockchain works | At its heart, a Blockchainis a cryptographic protocol that allows separateparties to increase the trustworthiness of a transaction because the ledger entries in its database cannot be easily falsified (i.e. once data is written it is extremely difficult to change, albeit provided the data was correct from the outset). This “immutability”is due to a combination of factors including the cryptography used in a Blockchain, its consensus/validation mechanism and its distributed nature. As a result of this immutability, Blockchain systems can be used as an independent umpire in processes that might otherwise expose participants to the risk of one party not living up to its contractual obligations (counterparty risk) and where third-party guarantors are reluctant to intervene and assume part of that risk. |
| Step by step how blockchain works | It writes transactions
These transactions are written to a cryptographically signed block
Independent nodes must verify the cryptographically signed block
The block is written to the ledger after it is verified
The new block is linked to previous blocks—creating immutability |
