Blockchain Technology Overview

Dylan Yaga 
Peter Mell 
Nik Roby 
Karen Scarfone

See below: Executive Summary to Download the full Report

Audience 

This publication is designed for readers with little or no knowledge of blockchain technology who wish to understand at a high level how it works and for what it can be used. It is not intended to be a technical guide; the discussion of the technology is abstracted to provide a conceptual understanding


This document provides a high-level technical overview of blockchain technology. It discusses its application to electronic currency in depth, but also shows its broader applications. The purpose is to help readers understand how blockchains work, so that they can be appropriately and usefully applied to technology problems. Additionally, this document explores some specific blockchain applications and some examples of when a blockchain system should be considered for use. 

Executive Summary

113 Blockchains are immutable digital ledger systems implemented in a distributed fashion (i.e.,

114 without a central repository) and usually without a central authority. At their most basic level,

115 they enable a community of users to record transactions in a ledger that is public to that

116 community, such that no transaction can be changed once published. In 2008, the blockchain

117 idea was combined in an innovative way with several other technologies and computing concepts

118 to enable the creation of modern cryptocurrencies: electronic money protected through

119 cryptographic mechanisms instead of a central repository. The first such blockchain based

120 approach was Bitcoin. These currency blockchain systems are novel in that they store value, not

121 just information. The value is attached to a digital wallet—an electronic device (or software) that

122 allows an individual to make electronic transactions. The wallets are used to sign transactions

123 sent from one wallet to another, recording the transferred value publicly, allowing all participants

124 of the network to independently verify the validity of the transactions. Each participant can keep

125 a full record of all transactions, making the network resilient to attempts to alter that record (or

126 forge transactions) later.

127 Because there are countless news articles and videos describing the “magic” of the blockchain,

128 this paper aims to describe the method behind the magic (i.e., how a blockchain system works).

129 Arthur C. Clarke once wrote, “Any sufficiently advanced technology is indistinguishable from

130 magic” [1]. Clarke’s statement is a perfect representation for the emerging use cases for

131 blockchain technology. There is a high level of hype around the use of blockchains, yet the

132 technology is not well understood. It is not magical; it will not solve all problems. As with all

133 new technology, there is a tendency to want to apply it to every sector in every way imaginable.

134 This document attempts bring a high-level understanding of the technology so that it can be

135 applied effectively.

136 As stated above, blockchain technology is the foundation of modern cryptocurrencies, so named

137 because of blockchain’s heavy usage of cryptographic functions. Users utilize public and private

138 keys to digitally sign and securely transact within the system. Users of the blockchain may solve

139 puzzles using cryptographic hashing in hopes of being rewarded with a fixed amount of the

140 cryptocurrency. However, blockchain technology is more broadly applicable than its application

141 to cryptocurrencies. In this work, we try to show this broader applicability while still focusing to

142 a large extent on the cryptocurrency use case (since that is the primary use case today).

143 Organizations considering implementing blockchain technology need to understand important

144 aspects of the technology. For example, what happens when an organization implements a

145 blockchain system and then decides they need to make modifications to the data stored? When

146 using a database, this can be accomplished through a simple query (or major changes can be

147 made by updating the database schema or software). However, on a blockchain, it is much more

148 difficult to change data or update the ‘database’ software. Organizations need to understand the

149 extreme difficulty in changing anything that is already on the blockchain, and that changes to the

150 blockchain software may cause forking of the blockchain. Another critical aspect of blockchain

151 technology is how the participants agree that a transaction is valid. This is called “reaching

152 consensus”, and there are many models for doing so, each with positives and negatives for a

153 specific business case. NISTIR 8202 (DRAFT) BLOCKCHAIN TECHNOLOGY OVERVIEWv

154 Some existing blockchain technologies focus on storing wealth, while others are a platform for

155 smart contracts (software which is deployed on the blockchain itself, and executed by the

156 computers running that blockchain). New blockchain technologies are being developed

157 constantly to enable new use cases and to improve the efficiency of existing systems. Some

158 blockchain implementations are permissionless, meaning anyone can read and write to them.

159 Other implementations limit participation to specific people or companies, allow finer-grained

160 controls, and may be managed by a central entity. Knowing these specifics allows an

161 organization to understand what will be most applicable to its needs.

162 Despite the many variations of blockchain systems and the rapid development of new

163 technologies, most blockchains use some common core concepts. Each transaction involves one

164 or more addresses and a recording of what happened, and it is digitally signed. Blockchains are

165 comprised of blocks, each block being a group of transactions. All the transactions in a block are

166 grouped together, along with a cryptographic hash of the previous block. Finally, a new hash is

167 created for the current block’s header to be recorded within the block data itself as well as within

168 the next block. Over time, each block is then chained to the previous block in the chain by

169 adding the hash of the previous block to the header of the current block.

170 Each technology used in a blockchain system takes existing, proven concepts and merges them

171 together in a way that can address problems that were previously difficult. This document

172 explores the fundamentals of how blockchain technologies work, how the participants in the

173 network come to agree whether a transaction is valid, what happens when changes need to be

174 made to an existing blockchain deployment, and how permissions work. Additionally, this

175 document explores specific blockchain applications and examples of when to consider using a

176 blockchain system.

177 The use of blockchain technology is not a silver bullet, and there are issues that must be

178 considered such as how to deal with malicious users, how controls are applied, and the

179 limitations of any blockchain implementation. That said, blockchain technology is an important

180 concept that will be a basis for many new solutions.

Now Download the Full Free Report here: https://csrc.nist.gov/CSRC/media/Publications/nistir/8202/draft/documents/nistir8202-draft.pdf


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