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Blockchain in-depth

Blockchain FAQs

1. Isn’t there only one blockchain?

   It’s easy to think of “the blockchain'' as a single entity, but that’s not the case. There are hundreds of different blockchain ledgers that record and track transactions, as well as other types of data, in their own unique ways.

   Because different blockchains are built and operate following different rules, blockchain bridges and other interoperability services allow these independent blockchains to exchange information and tokens with one another.

   Check out our article What is blockchain technology? for more information.

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2. Are blockchains the same as cryptocurrencies?

   While some use blockchain and cryptocurrency interchangeably, they are actually different things.

   Cryptocurrencies are digital tokens that holders can use to exchange and perform a range of other functions. Blockchains serve as decentralized databases that store and record information —  including the details of cryptocurrency transactions.

   Each blockchain is powered by a network of globally distributed volunteers called nodes. Nodes perform all the important tasks needed to maintain a decentralized cryptocurrency network, from data storage to transaction verification and issuing new units into circulation per the strict rules of the protocol.

   Without their underlying blockchain infrastructures and networks of independent, distributed nodes, cryptocurrencies could not exist.

   Check out our article What is cryptocurrency? for more information.

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3. Are blockchains slow and expensive?

   You might hear some crypto naysayers argue that blockchain databases are slow and cost more than other existing ledger technologies. But, in reality, many blockchains are significantly faster and cheaper than traditional options.

   Even Bitcoin’s blockchain, which is one of the earliest cryptocurrency blockchains, is capable of processing transactions in under an hour, at an average cost of a few US dollars (during normal uncongested times).

   In addition to blockchains, there are also secondary scaling technologies that boost the efficiency of many popular blockchains. For example, the Bitcoin Lightning Network is a solution that significantly improves bitcoin transaction times and fees, while Arbitrum is a Layer 2 platform that helps to scale the Ethereum blockchain.

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4. What types of information can blockchain networks store?

   It’s no surprise that many people think that blockchains are exclusively used to store crypto-based transaction data. While it’s certainly true that a majority of operating blockchains today are used for this purpose, they can store other types of important information too.

   Beyond crypto, anyone can use blockchain ledgers to store any type of information, whether it be for supply chain purposes, product authentication, or to streamline legacy financial services.

   Dozens of industries are already exploring blockchain-based solutions to improve the efficiency and security of their tracking systems.

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5. What companies are using blockchain technology?

   Over the past several years, a wide range of traditional companies have not just explored, but already started to implement blockchain technology into their businesses.

   A key reason for this is to enjoy the transparency, tamper-proof, and security benefits that blockchain ledgers have over traditional, privately-managed databases.

   Examples of major companies that created their own blockchain-based services include J.P. Morgan, WalMart, IBM, Microsoft, and Amazon.

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6. What is cryptocurrency mining, and why is it necessary for some blockchains?

   Some blockchains use a process called mining to decide who should have the right to propose the next block and earn rewards for doing so. To make it fair, crypto mining is designed as a sort of competition that repeats every few minutes (this time varies depending on the specific blockchain).

   The competition requires participants, known as “miners”, to use specialized machines to generate random, fixed-length codes — almost like digital lottery tickets. Miners compete to generate a code that has the same or more zeroes at the front than the target hash (the code that everyone tries to beat).

   Not only does this process fairly select people at random to propose new blocks, but the energy involved in this challenge helps to secure the blockchain network itself.

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7. Who runs a blockchain?

   Blockchains are open-source software protocols. You can think of these as computer programs that anyone can help to modify and improve.

   Developers create public blockchains, but a network of volunteers run them using their computers.

   These volunteers are called “nodes.” Nodes perform all the important tasks needed to manage a blockchain database by following a set of rules set by the protocol.

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