Blockchain, Distributed Ledgers and Tokens

No single owner, and everything follows from that

A blockchain is a public or shared ledger of transactions that is not owned or controlled by any single user. Every participant holds a copy, and new entries are added only when the network as a whole agrees they are valid. That single design choice, no central owner, is the reason blockchains need every other feature described below: without a central authority to simply declare what happened, the network needs a mechanical way to agree.

Data on a blockchain is also organised so that altering a past record would require redoing the work for every block that came after it, across every copy of the ledger simultaneously, which is what makes the ledger practically tamper-resistant rather than tamper-proof in an absolute sense.

How the network agrees: consensus mechanisms

Consensus is the mechanism by which a decentralised network agrees on which transactions are valid, and different blockchains use genuinely different mechanisms, which is worth telling apart.

Proof of Work (PoW), used by Bitcoin, requires participants to expend real computing power solving a difficult mathematical puzzle to earn the right to add the next block. It is secure precisely because cheating would require more computing power than the rest of the honest network combined, but it is slow and consumes very large amounts of electricity.

Proof of Stake (PoS) instead selects who adds the next block based on how much of the network's own currency a participant has committed, or "staked," as collateral. It settles transactions considerably faster than Proof of Work and uses a small fraction of the energy, which is why most newer blockchain systems, including Ethereum since 2022, have moved to it.

Permissionless versus permissioned: who is even allowed to participate

This is the distinction a question is most likely to test directly, because the two categories genuinely behave like different technologies aimed at different problems.

A permissionless blockchain allows anyone to join, participate in validating transactions, and deploy smart contracts, with no gatekeeper. Bitcoin and Ethereum are the standard examples. Because anyone can join, including potentially malicious participants, permissionless systems typically rely on the costly Proof of Work model, or a carefully designed Proof of Stake, to keep participation honest.

A permissioned blockchain restricts who can validate transactions to a pre-approved, known set of participants, and may likewise restrict who can deploy smart contracts. Because the validators are already known and vetted, permissioned systems can use faster, lighter consensus methods, often variants of Byzantine fault-tolerant voting protocols, since they do not need to defend against an anonymous adversary joining at will. This is the model generally chosen for institutional and government-facing systems, including central bank digital currency pilots, where anonymous public participation is neither necessary nor desirable.

Smart contracts, and where NFTs fit

A smart contract is code stored on a blockchain that executes automatically when its programmed conditions are met, removing the need for a trusted intermediary to enforce an agreement.

A Non-Fungible Token (NFT) is a blockchain-based token representing ownership of a specific, unique asset, digital or physical. "Non-fungible" is the operative word: unlike a currency, where one unit is interchangeable with any other, each NFT is distinct and cannot be swapped one-for-one with another. What an NFT actually stores on the blockchain is typically a certificate of ownership and a pointer to the asset, not the asset's own data, which is why an NFT can represent ownership of a large digital file, or even a physical object, without that object needing to live on the blockchain itself.

Quick revision points

• A blockchain has no single owner; every feature below exists to make that workable. Data is organised so altering a past record requires redoing all subsequent blocks across every copy, making it tamper-resistant, not tamper-proof.
• Consensus mechanisms: Proof of Work (real computing effort, secure but slow and energy-heavy, Bitcoin) versus Proof of Stake (staked currency as collateral, faster and far less energy-intensive, Ethereum since 2022).
• Permissionless (anyone can join and validate, e.g. Bitcoin, Ethereum) versus permissioned (only a known, approved set of validators, faster lighter consensus, the model used for institutional and CBDC systems).
• A smart contract is self-executing code on a blockchain, removing the need for a trusted intermediary.
• An NFT represents ownership of a unique, non-interchangeable asset; the blockchain typically stores a certificate of ownership and a pointer, not the asset's own data.