There are yet only a few experts that understand blockchain technology and cryptocurrencies from an anti-financial crime and compliance perspective. In this Essential Guide to Blockchain Technology, you will learn the nuts and bolts of blockchain technology that you can leverage for cryptocurrency financial crime compliance.
What is a Blockchain?
In the simplest terms, a Blockchain is a diary that is almost impossible to forge.
In more advanced terms, the blockchain can be thought of as a distributed database. By these means, Blockchain is a particular type or subset of the so-called distributed ledger technology or DLT. DLT is a way of recording and sharing data across multiple data stores. All of these distributed and individual data stores together make up the database.
- On an open, permissionless blockchain, a person can join or leave the network at will, without having to be approved by any entity. All that is needed to join the network and add transactions to the ledger is a computer on which the relevant software has been installed. There is no central owner of the network and software, and identical copies of the ledger are distributed to all the nodes in the network. The vast majority of cryptocurrencies currently in circulation is based on permissionless blockchains. This includes cryptocurrencies such as Bitcoin, Cash, Litecoin, and others.
- Secondly, there is the permissioned blockchain. On a permissioned blockchain, transaction validators – which are the nodes – have to be pre-selected by a network administrator. The network administrator sets the rules for the ledger to be able to join the network. This allows to easily verify the identity of the network participants. However, at the same time it also requires network participants to put trust in a central coordinating entity to select reliable network nodes.
- On the one hand, there are open or public permissioned blockchains, which can be accessed and viewed by anyone, but where only authorised network participants can generate transactions and update the state of the ledger.
- On the other hand, there are closed or enterprise permissioned blockchains, where access is restricted and where only the network administrator can generate transactions and update the state of the ledger.