Understanding Blockchain Technology

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

Blockchain is the innovative database technology that’s at the heart of nearly all cryptocurrencies. By distributing identical copies of a database across an entire network, blockchain makes it very difficult to hack or cheat the system.

While cryptocurrency is the most popular use for blockchain presently, the technology offers the potential to serve a very wide range of applications.

At its core, blockchain is a distributed digital ledger that stores data of any kind. A blockchain can record information about cryptocurrency transactions, NFT ownership or DeFi smart contracts.

While any conventional database can store this sort of information, blockchain is unique in that it’s totally decentralized. Rather than being maintained in one location, by a centralized administrator—think of an Excel spreadsheet or a bank database—many identical copies of a blockchain database are held on multiple computers spread out across a network. These individual computers are referred to as nodes.

Featured Partners

Welcome Offer:

Join eToro and get $10 of free Crypto! (US Only)

Cryptocurrencies Available for Trade

20+

Fees (Maker/Taker)

1.99%*/1.99%*

Cryptocurrencies Available for Trade

100+

Fees (Maker/Taker)

0.95%/1.25%

Cryptocurrencies Available for Trade

200+

Fees (Maker/Taker)

0.40%/0.40%

Cryptocurrencies Available for Trade

170+

The name blockchain is hardly accidental: The digital ledger is often described as a “chain” that’s made up of individual “blocks” of data. As fresh data is periodically added to the network, a new “block” is created and attached to the “chain.” This involves all nodes updating their version of the blockchain ledger to be identical.

How these new blocks are created is key to why blockchain is considered highly secure. A majority of nodes must verify and confirm the legitimacy of the new data before a new block can be added to the ledger. For a cryptocurrency, they might involve ensuring that new transactions in a block were not fraudulent, or that coins had not been spent more than once. This is different from a standalone database or spreadsheet, where one person can make changes without oversight.

“Once there is consensus, the block is added to the chain and the underlying transactions are recorded in the distributed ledger,” says C. Neil Gray, partner in the fintech practice areas at Duane Morris LLP. “Blocks are securely linked together, forming a secure digital chain from the beginning of the ledger to the present.”

Transactions are typically secured using cryptography, meaning the nodes need to solve complex mathematical equations to process a transaction.

“As a reward for their efforts in validating changes to the shared data, nodes are typically rewarded with new amounts of the blockchain’s native currency—e.g., new bitcoin on the bitcoin blockchain,” says Sarah Shtylman, fintech and blockchain counsel with Perkins Coie.

There are both public and private blockchains. In a public blockchain, anyone can participate meaning they can read, write or audit the data on the blockchain. Notably, it is very difficult to alter transactions logged in a public blockchain as no single authority controls the nodes.

A private blockchain, meanwhile, is controlled by an organization or group. Only it can decide who is invited to the system plus it has the authority to go back and alter the blockchain. This private blockchain process is more similar to an in-house data storage system except spread over multiple nodes to increase security.

Blockchain technology is used for many different purposes, from providing financial services to administering voting systems.

The most common use of blockchain today is as the backbone of cryptocurrencies, like Bitcoin or Ethereum. When people buy, exchange or spend cryptocurrency, the transactions are recorded on a blockchain. The more people use cryptocurrency, the more widespread blockchain could become.

“Because cryptocurrencies are volatile, they are not yet used much to purchase goods and services. But that is changing as PayPal, Square and other money service businesses make digital asset services broadly available to vendors and retail customers,” notes Patrick Daugherty, senior partner of Foley & Lardner and lead of the firm’s blockchain task force.

Beyond cryptocurrency, blockchain is being used to process transactions in fiat currency, like dollars and euros. This could be faster than sending money through a bank or other financial institution as the transactions can be verified more quickly and processed outside of normal business hours.

Blockchain can also be used to record and transfer the ownership of different assets. This is currently very popular with digital assets like NFTs, a representation of ownership of digital art and videos.

However, blockchain could also be used to process the ownership of real-life assets, like the deed to real estate and vehicles. The two sides of a party would first use the blockchain to verify that one owns the property and the other has the money to buy; then they could complete and record the sale on the blockchain.

Using this process, they could transfer the property deed without manually submitting paperwork to update the local county’s government records; it would be instantaneously updated in the blockchain.

Another blockchain innovation are self-executing contracts commonly called “smart contracts.” These digital contracts are enacted automatically once conditions are met. For instance, a payment for a good might be released instantly once the buyer and seller have met all specified parameters for a deal.

“We see great potential in the area of smart contracts—using blockchain technology and coded instructions to automate legal contracts,” says Gray. “A properly coded smart legal contract on a distributed ledger can minimize, or preferably eliminate, the need for outside third parties to verify performance.”

Supply chains involve massive amounts of information, especially as goods go from one part of the world to the other. With traditional data storage methods, it can be hard to trace the source of problems, like which vendor poor-quality goods came from. Storing this information on blockchain would make it easier to go back and monitor the supply chain, such as with IBM’s Food Trust, which uses blockchain technology to track food from its harvest to its consumption.

Experts are looking into ways to apply blockchain to prevent fraud in voting. In theory, blockchain voting would allow people to submit votes that couldn’t be tampered with as well as would remove the need to have people manually collect and verify paper ballots.

Because a blockchain transaction must be verified by multiple nodes, this can reduce error. If one node has a mistake in the database, the others would see it’s different and catch the error.

In contrast, in a traditional database, if someone makes a mistake, it may be more likely to go through. In addition, every asset is individually identified and tracked on the blockchain ledger, so there is no chance of double spending it (like a person overdrawing their bank account, thereby spending money twice).

Using blockchain, two parties in a transaction can confirm and complete something without working through a third party. This saves time as well as the cost of paying for an intermediary like a bank.

“It has the ability to bring greater efficiency to all digital commerce, to increase financial empowerment to the unbanked or underbanked populations of the world and to power a new generation of internet applications as a result,” says Shtylman.

Theoretically, a decentralized network, like blockchain, makes it nearly impossible for someone to make fraudulent transactions. To enter in forged transactions, they would need to hack every node and change every ledger. While this isn’t necessarily impossible, many cryptocurrency blockchain systems use proof-of-stake or proof-of-work transaction verification methods that make it difficult, as well as not in participants’ best interests, to add fraudulent transactions.

Since blockchains operate 24/7, people can make more efficient financial and asset transfers, especially internationally. They don’t need to wait days for a bank or a government agency to manually confirm everything.

Given that blockchain depends on a larger network to approve transactions, there’s a limit to how quickly it can move. For example, Bitcoin can only process 4.6 transactions per second versus 1,700 per second with Visa. In addition, increasing numbers of transactions can create network speed issues. Until this improves, scalability is a challenge.

Having all the nodes working to verify transactions takes significantly more electricity than a single database or spreadsheet. Not only does this make blockchain-based transactions more expensive, but it also creates a large carbon burden on the environment.

Because of this, some industry leaders are beginning to move away from certain blockchain technologies, like Bitcoin: For instance, Elon Musk recently said Tesla would stop accepting Bitcoin partly because he was concerned about the damage to the environment.

Some digital assets are secured using a cryptographic key, like cryptocurrency in a blockchain wallet. You need to carefully guard this key.

“If the owner of a digital asset loses the private cryptographic key that gives them access to their asset, currently there is no way to recover it—the asset is gone permanently,” says Gray. Because the system is decentralized, you can’t call a central authority, like your bank, to ask to regain access.

Blockchain’s decentralization adds more privacy and confidentiality, which unfortunately makes it appealing to criminals. It’s harder to track illicit transactions on blockchain than through bank transactions that are tied to a name.

You can’t actually invest in blockchain itself, since it’s merely a system for storing and processing transactions. However, you can invest in assets and companies using this technology.

“The easiest way is to purchase cryptocurrencies, like Bitcoin, Ethereum and other tokens that run on a blockchain,” says Gray.Another option is to invest in blockchain companies using this technology. For example, Santander Bank is experimenting with blockchain-based financial products, and if you were interested in gaining exposure to blockchain technology in your portfolio, you might buy its stock.

For a more diversified approach, you could buy into an exchange-traded fund (ETF) that invests in blockchain assets and companies, like the Amplify Transformational Data Sharing ETF (BLOK), which puts at least 80% of its assets in blockchain companies.

Despite its promise, blockchain remains something of a niche technology. Gray sees the potential for blockchain being used in more situations but it depends on future government policies. “It remains to be seen when and if regulators like the SEC will take action. One thing is evident—the goal will be to protect markets and investors,” he says.

Shtylman likens blockchain to the early stages of the internet. “It took about 15 years of having the internet before we saw the first version of Google and over 20 for Facebook. It’s hard to predict where blockchain technology will be in another 10 or 15 years, but much like the internet, it will significantly transform the ways we transact and interact with each other in the future.”

Hurdles remain, especially with the transaction limits and energy costs, but for investors who see the potential of the technology, blockchain-based investments may be a bet worth taking.

Will the Blockchain Replace Swift?

Editor’s Note: This article is adapted from the forthcoming book “ValueWeb: How Fintech Firms are Using Bitcoin Blockchain and Mobile Technologies to Create the Internet of Value.” This excerpt originally appeared on Traders sibling publication American Banker.

I made a provocative comment, as it turned out, during my keynote at a recent conference. The comment was picked up in a press article that reported I said “the coding behind virtual currency bitcoin could also prove to be enormously transformational, potentially even replacing the Swift network for interbank payments.”

This remark created a lot of debate as Swift is the backbone of the banking industry worldwide. Built in the 1970s to replace telex machines with electronic transfers, Swift is a co-operatively funded network by the global banking system to let them send funds with confidence. Its very name shows its cooperative nature: the Society for Worldwide Interbank Financial Telecommunication.

Swift provides a network that enables financial institutions to send and receive information about financial transactions in a secure, standardized and reliable environment. The majority of banks use the Swift network to send money. As of September 2010, more than 9,000 financial institutions in 209 countries, were sending and receiving an average of over 15 million messages per day, compared with just 2.4 million a day in 1995. Furthermore, banks trade something like $5 trillion a day in currencies alone, and most of that is handled by message exchanges to and from the Swift network.

Therefore to say that a new technology, the blockchain, could eradicate a 50-year-old, bank-owned network overnight is provocative. But then, many countering my view showed a complete lack of understanding of what the technology is. Sure, banks are waking up to bitcoin and, more important, the blockchain and its ability to transform banking. But not quickly enough.

Blockchain, a technology that has more compute power behind it on a decentralized basis than any open source project in history, could fundamentally reinvent the banking system. And yet, few bankers understand it. They made this known by expressing views that were clearly incorrect after they read my keynote comment.

First, there was the view that bitcoin is purely for payments. No. Bitcoin, the protocol, and other cryptocurrencies are for the recording of digital value exchanges that can take any form from a payment to a marriage vow.

Second, that bitcoin cannot threaten something like Swift, as Swift is more than just payments. Half of Swift’s activities are in securities settlement, for example. Wrong. Bitcoin’s technology can record securities settlements as easily as a marriage contract or a payment. This is evidenced by the newly launched investment markets service, Colored Coins, a company that records investment activity on the blockchain.

Third, that the upstart cryptocurrencies could not threaten Swift since Swift has the scalability, security, resilience and history that provide the trust in the network. Wrong. Bitcoin is now using more scalable and capable networking compute power than SETI, the Search for Extraterrestrial Intelligence, which was the world’s previously largest networked system.

Fourth, that the bitcoin blockchain is of interest, but not the currency. Some people believe this is wrong, too. They state that you cannot have a blockchain in banking without a native currency-and why would you replace bitcoin as the native currency when it’s had five years and thousands of man hours of development effort invested? It’s an interesting discussion, and one I disagree with personally as you can have a dollarchain or eurochain, rather than a bitcoin blockchain, but only time will tell on this one.

Fifth, that Mt. Gox’s collapse has destroyed all trust in bitcoins and its ecosystem. No. Just because a flaky trading system collapsed does not remove the robustness of the bitcoin protocol. It’s similar to Northern Rock collapsing. Does that mean you no longer buy Pounds Sterling?

Sixth, that it is difficult to use. Yes, but that’s changing fast thanks to the bitcoin ecosystem. Companies such as Circle and Ripple are changing the game. Bitcoin is like the Internet before Tim Berners-Lee gave us the World Wide Web. But it’s becoming easier and faster, so keep watching this space.

Finally, that it’s not relevant because it’s just a cryptocurrency. Wrong. It’s a protocol, a commodity, a technology, a smart contracts system, a general ledger, a secure exchange – a many splendored thing.

Now, I write about bitcoin all the time. Not because I’m promoting it but because it has the potential to reinvent banking, money and regulation as we know it. Its technology – the blockchain – is the core technology of the ValueWeb. That is why leading exponent and investor in bitcoin startups, Marc Andreessen, is regularly quoted as saying this is important. In February 2012, he told TechCrunch, “Every single smart computer science person I’ve had look into it has reached the same conclusion – blockchain is a fundamental breakthrough in technology.”

Andreessen told Bloomberg in October 2014: “We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information.”

And on Twitter in February 2014, he wrote, “I am dying to fund a disruptive bank.”In other words he, and many other highly intelligent investors, are betting the farm that this technology will succeed.

A final point of clarification. What I said was, “Bitcoin even has the potential to replace Swift for financial transaction processing.” I didn’t say it would. The fact that Swift is highly inclusive of Ripple, Colored Coins, the bitcoin community and more in its internal and external discussions shows that Swift is just as keen as I to highlight the importance of these developments to its financial community.

Chris Skinner is an author, expert and speaker on banking, finance and fintech. He can be reached @Chris_Skinner.

20 Biggest Blockchain Companies in the World in 2023

In this article, we will be taking a look at the 20 biggest blockchain companies in the world in 2023. To skip our detailed analysis of the blockchain sector, you can go directly to see the 5 Biggest Blockchain Companies in the World in 2023.

Blockchain is a recent technology breakthrough that derives its major value from providing decentralized database storage systems due to which it provides the ultimate form of digital security and scalability. This security means that blockchain technologies will have a major role in the progress of the digitalized economy. A report by OECD discusses how Decentralized Finance, or 'DeFi', will keep gaining significance due to the speed of execution, transaction costs, and security it provides. Despite cryptocurrencies having recent crises, the technology utilized in blockchains that power those currencies is indisputable.

DeFi is a more recent trend in the crypto-asset space. It is meant to replicate traditional financial activities in a decentralized and autonomous manner. This basically entails the provision of financial instruments without any reliance on intermediaries such as exchanges or brokerages. DeFi offers financial services primarily by using smart contracts on a blockchain.

One of the major uses of blockchain technology is that of cryptocurrencies. While the cryptocurrency market did see major drops in 2022, Bitcoin, along with many other cryptocurrency tokens, has seen a large rally over the past several months, and a number of crypto-focused equity names have seen substantial year-to-date moves. Investor sentiment towards cryptocurrencies also appears to be healthy, and the reintroduction of the United States legislation to allow retirement plans to include cryptocurrencies show support for the market. In February, Alabama Senator Tommy Tuberville spearheaded this move. He stated that the Financial Freedom Act, first introduced in the US Senate in May 2022, was meant to reverse the Department of Labor's policy directing what type of investments were allowed in retirement plans. Tuberville further stated that this bill would bar the Department of Labor from interfering with the usage of brokerage windows to invest in cryptocurrency. This move of governmental support is expected to sustain the rise of cryptocurrency.

Story continues

According to analysts, this rise is expected to continue due to an ease in macroeconomic activities. Companies including Coinbase Global, Inc. (NASDAQ:COIN), Mastercard Incorporated (NYSE:MA), and Paypal Holdings, Inc. (NASDAQ:PYPL) have been investing to leverage blockchain technologies and profit from the crypto rally. At the same time, investors are eyeing the blockchain and crypto sector as a potentially profitable investment option in the long run, leading to us compiling a list of the biggest blockchain companies in the world today.

Let's now take a look at the 20 biggest blockchain companies in the world.

Our Methodology

We scoured several different financial reports to look at a number of companies involved in the usage of blockchain technologies. From among these companies, we looked at a number of factors including the companies' investments in blockchain technologies, the scale at which they are operating, and any significant moves they have made in recent years. We then ranked these shortlisted companies according to their market capitalization as of February 2023.

Market Capitalization as of February 18: N/A

Anchorage Digital is a private blockchain company based in San Francisco, California. The company has over 350 employees, and it was founded in 2017.

The company provides the technology, infrastructure, and tools institutions need to participate in the crypto-economy. Anchorage Digital owns the first-ever federally chartered cryptocurrency bank, which was by the Office of the Comptroller of the Currency in 2021.

Market Capitalization as of February 18: N/A

Coinme Inc. is a cryptocurrency exchange company operating in the software and technology services sector. It is based in Seattle, Washington. The company is working to set up a nationwide network of Bitcoin kiosks that accept cash investments. It also offers the Coinme app to simplify the experience of investing in Bitcoin. Coinme Inc. is the company behind one of the first launched Bitcoin ATMs in the US.

Market Capitalization as of February 18: $247.3 million

Bitfarms Ltd. is a cryptocurrency mining company based in Toronto, Canada. It was founded in 2017 and primarily operates server farms that validate transactions on the Bitcoin Blockchain. In addition to this, it also provides commercial and residential clients with electrician services and hosts third-party mining hardware.

Market Capitalization as of February 18: $269.8 million

HIVE Blockchain Technologies Ltd. is a cryptocurrency mining company based in Vancouver, Canada. It was incorporated in 1987 and changed its name to HIVE Blockchain Technologies Ltd. in 2017. The company operates in Canada, Sweden, and Iceland and carries out the mining and sale of different cryptocurrencies including, Bitcoin and Ethereum.

Market Capitalization as of February 18: $290 million

Applied Digital Corporation, formerly known as Applied Blochkchain, Inc., is a Bitcoin mining business that also works with designing, developing, and operating next-generation data centers in North America. It was founded in 2001 and is currently based in Dallas, Texas. The company changed its name to represent its new aim of expanding to companies outside the cryptocurrency space to diversify its revenue base.

Market Capitalization as of February 18: $528.5 million

Canaan, Inc. was founded in 2013 and provides high-performance computing solutions. It creates and sells integrated circuit (IC) equipment products by integrating these with bitcoin mining and related components and is based in Beijing, the People's Republic of China. The company also works with the assembling and distribution of mining parts and equipment.

Market Capitalization as of February 18: $878.1 million

Marathon Digital Holdings Inc. is an asset technology company that mines cryptocurrencies and is based in Nevada, United States. It was founded in 2010 and as of December 2021 had 8,090 Bitcoin holdings.

It produced 687 Bitcoin in January 2023 which was a 45% increase compared to December 2022. George Soros, a billionaire investor, revealed that he has an investment of nearly $9 million on February 14, 2023. Marathon Digital Holdings, Inc. has a projected hash rate growth of 6x from the third quarter of 2022 to the second quarter of 2023. In 2021, it had an annual revenue of $150.4 million.

Market Capitalization as of February 18: $1.1 billion

Riot Blockchain Inc. is another Bitcoin mining company formerly known as Riot Blockchain, Inc. It was incorporated in 1998 and is headquartered in Colorada, United States. Riot Platforms, Inc. also works in the fields of data center hosting, electrical products, and engineering.

It owns the Whinstone facility which is the largest facility in terms of developed capacity and mined 659 Bitcoin in December 2022 which was a 26% increase from November 2022. It also sold 600 Bitcoins in December which generated above $10 million in net proceeds.

Market Capitalization as of February 18: $2.2 billion

MicroStrategy Incorporated, an application software company, owns a significantly large amount of Bitcoin, according to its balance sheet. The crypto holding values up to $2.2 billion.

The co-founder of MicroStrategy Incorporated (NASDAQ:MSTR), Michael Saylor, is among the most bullish Bitcoin investors today. As a result, the company has added to its Bitcoin stake through 2022, ensuring that when the cryptocurrency shoots back up, MicroStrategy Incorporated (NASDAQ:MSTR) will be among the biggest benefactors of the rise.

Market Capitalization as of February 18: $2.3 billion

Galaxy Digital Holdings Ltd. is another asset management firm that operates in digital assets as well as the cryptocurrency and blockchain technology industries. Founded in 2018, it is based in New York, United States, and has diversified offerings including trading, mining, investment banking, and principal investments as well. The company also provides financial services as well as financial tools to North American miners.

It recently acquired the Helios facility from Argo Blockchain and the CEO recently made a statement saying that the company expects Bitcoin to continue rising. CI Global Asset Management has the largest share in the company at 7.9% but it is individual investors who own more than 69% of the shares.

Market Capitalization as of February 18: $8.47 billion

Robinhood Markets, Inc. is a stock brokerage app that provides trade services for stocks, cryptocurrencies, and ETFs. The company was incorporated in 2013 and is based in California, United States. It also provides educational solutions, news stories, and alerts that allow consumers to monitor their trade. It also provides trade recommendations to first-time users.

It has recently made efforts to expand its consumer base to foreign markets, foreign securities, and retirement accounts. It generated a revenue of $1.36 billion in 2022 and is expected to see growth to lead to a $1.82 billion revenue in 2023.

Market Capitalization as of February 18: $14.44 billion

Coinbase Global, Inc. is another provider of financial infrastructure and transaction services and is based in Delaware, United States. It was founded in 2012 and offers crypto accounts to retailers, a marketplace for crypto assets for institutions, and services that create crypto-based ecosystems for transactions.

The Securities and Exchange Commission has recently attacked the staking of Kraken, Paxos, and Binance which has left Coinbase Global, Inc. at an advantage as it has been left alone. The company generated $7.84 billion in revenue in 2021.

Market Capitalization as of February 18: $44.9 billion

Block, Inc., formerly known as Square, is a payment processing ecosystem and a financial platform based in California, United States. It was founded in 2009 and also provides products including chips, magnetic stripe cards, and other financial processing hardware as well as services such as its buy-now-pay-later financing.

The company changed its name to show its aim of being focused on blockchain technology solutions. It reported more than $10 billion in Bitcoin purchases through its Cash App and generated a total revenue of $17.6 billion in 2021.

Market Capitalization as of February 18: $62.8 billion

CME Group Inc., a financial exchanges and data company, operates markets for the trading of futures and options on futures contracts globally. The company also provides cleared swaps products and services in trade processing, mitigation, and data.

The company is primarily driven by its interest rate derivatives products. Here, CME Group Inc. dominates the market in the exchange trading of these derivatives. It had a 10% jump in its quarterly dividend to $1.10 per share per quarter, bringing its dividend yield to 2.4%. The annual volume of contracts for CME Group Inc. rose by 19% in 2022 to an average of 23.3 million average daily volume and an expected free cash flow yield of 5.0% in 2023.

Market Capitalization as of February 18: $83.9 billion

Paypal Holdings, Inc. provides a platform for digital payments across the world and is based in California, United States. It was founded in 1998 and has since then accumulated over 400 million global users. In cryptocurrencies, it deals with Bitcoin, Bitcoin Cash, Litecoin, and Ethereum currencies.

PayPal Holdings, Inc. offers popular services among gig workers (independent contractors) and this market is expected to grow with a CAGR of 16.2% to reach $873 billion by 2028. It has shown consistent growth in revenue over the past few years and generated $27.5 billion in 2022.

Paypal Holdings, Inc., like Coinbase Global, Inc. (NASDAQ:COIN) and Mastercard Incorporated (NYSE:MA), is one of the major players in the blockchain technology field.

Click to continue reading and see the 5 Biggest Blockchain Companies in the World in 2023.

Suggested articles:

Disclosure: None. 20 Biggest Blockchain Companies in the World in 2023 is originally published on Insider Monkey.