Why So Many Blockchains?

The simplest and clearest way to describe a blockchain is as follows: a blockchain is a file that records every transaction ever made with a cryptocurrency.

However, this definition is incomplete. It leaves out essential operating principles that define what makes a blockchain unique. These principles include:

• Information is recorded in blocks.
• The file is distributed, meaning it’s stored on multiple computers simultaneously and kept in sync across them.
• Data entries adhere strictly to consensus principles set for the cryptocurrency.

Once these principles are introduced, the concept of blockchain becomes a bit more complex. So, let’s start by remembering the basics (a blockchain is a file that holds records of all transactions) and, building on this, delve into the details. In fact, understanding it isn’t as difficult as it may seem.

The Purpose of Blockchain

Imagine creating a form of digital currency (for a game, a company’s internal transactions, or even a country’s currency). We’d want to know precisely:

• Who transferred money to whom, when, and how much.
• How much money everyone currently holds.

To achieve this, we start recording all money transfers in a book (ledger). Since the currency is digital, the ledger will also be digital — a database, essentially, which we call a blockchain. We establish a rule: a transaction is considered valid only when it’s recorded in this database.

Under this rule, every time Alice sends money to Bob, she must record this in our book. If the entry isn’t there, the transfer isn’t considered complete. Anyone who opens the book will see that the money still belongs to Alice.

In this way, a blockchain becomes the single authoritative source of information on every transaction involving the money we created. Thus, it also accurately reflects who owns what amount at any given moment.

How Blockchain Works

This approach to recording transactions has several vulnerabilities:

1. If anyone may add a transaction to the ledger, Carol, who might want to harm Alice, can write in the ledger: “Alice transferred all her money to Bob.”
2. Alice can secretly remove the page with the record of her transfer to Bob, and on a new page, write that she transferred the money to Dan instead.
3. If the ledger is destroyed, verifying everyone’s balance would be impossible.

Blockchain solves these problems by adhering to the following principles:

1. Only someone who can prove they have access to funds can enter a transfer in the ledger. In an encrypted database, access is controlled through a key. Only the key holder can add a transaction from that address to the ledger. This prevents Carol from transferring Alice’s funds.
2. Each “page” (block) begins with the hash of the previous “page” (block). A hash is a unique cryptographic fingerprint of the data. Even a minor change, or the deletion of a block, disrupts the chain’s integrity, making it clear where tampering has occurred. This prevents Alice from erasing or altering an entry unnoticed.
3. Anyone can save the blockchain on their computer and sync it with other devices, adding new blocks (pages with transaction records) as they appear in the network. Even if some copies are destroyed, others will remain intact. This decentralized nature makes blockchain nearly indestructible.

A blockchain records data not as individual entries but as whole blocks, akin to regularly inserting filled pages into a book. Hence the name: “blockchain.”

Transaction senders place their records on “pages” awaiting insertion into the book. When a block is added to the blockchain, its validator (or miner) verifies that each transaction adheres to the cryptocurrency’s rules. For instance, it checks that each sender signed their transaction with the correct key for the originating address. Only rule-abiding transactions make it into the block and are recorded on the blockchain.

Can One Blockchain Suffice?

Though a blockchain “book” can theoretically have endless pages, each page’s space is limited.

Blockchain technology first appeared with Bitcoin, where it was meant solely for financial transactions:

• Blockchain lets you control your funds without requiring anyone’s permission, provided the miners operate honestly. All that’s needed to send a transaction is the address key.
• Blockchain ensures that your funds are, indeed, yours.
• It allows tracking how funds are subsequently spent or allocated, for instance, when transferred to children, subsidy recipients, or government entities.
• It makes it easy to prove that a transfer occurred.
• It verifies which specific coins or tokens were transferred in a transaction.

Blockchain was soon heralded as a financial technology of the future, potentially a powerful tool for combatting shadow finance. Since blockchain permanently records all transactions, criminals face higher risks when using it. Even if tracking technology today can’t catch a criminal using the blockchain, the record remains. As technology advances, catching them will become feasible. Thus, moving all financial transactions to a public blockchain would eliminate the opportunity for money laundering.

Moreover, blockchain could replace intermediaries in financial transactions. Banks, interbank clearing systems, international payment networks, and money transfer services all consume vast resources and add costs to financial services. Blockchain consolidates these intermediaries into one: the block miner or validator. A blockchain-based financial system:

• Consumes far fewer resources than traditional banking.
• Has fewer points of failure and fewer obstacles to transactions.
• Reduces transaction costs.

However, accommodating all financial transactions on a blockchain requires immense space within its blocks. Bitcoin’s blockchain lacks this capacity. Transactions occupy space in the blocks. It’s not feasible to compress data infinitely or to expand block size indefinitely. A more practical solution is to use different blockchains for different purposes.

Moreover, it quickly became clear that blockchain technology could be applied in any area where unalterable records or simplified data entry into a shared database are beneficial (e.g., in medicine or certain governmental processes). Additionally, blockchain entries might be smart contracts — self-executing scripts that facilitate asset transfers based on specified conditions.

Bitcoin’s original blockchain only allows limited additional information to accompany transactions, which restricts it to recording financial transfers. This is another reason alternative blockchains emerged.

Alternative Blockchains

However, launching a new blockchain is more challenging than it seems. Technically, it’s straightforward — the software is open-source. The challenge lies in the social and economic aspects.

In blockchain, the only intermediary for financial transactions or database entries is the miner (or block validator). So, a new blockchain’s success hinges on who will mine it and how to ensure that miners honestly follow its rules. Some ecosystems struggle to incentivize honest validation or lack sufficient mining power, leaving them vulnerable to tampering, such as the 51% attack on the Ethereum Classic network. In some cases, even validators have been accused of altering data, as in the case of the blockchain used for regional elections in Russia in 2022.

In Bitcoin, the incentive for miners is a reward in bitcoin, which grows in value as Bitcoin’s demand increases. Sacrificing this reward for rule-breaking isn’t worthwhile.

But, even with Bitcoin, this issue remains relevant. Starting a mining business requires significant investment, which not everyone can afford. Furthermore, solo mining has become unprofitable, leading miners to form pools. If a government (or other powerful entity) pressures major pools, it could disrupt blockchain operations. In any new blockchain, exerting such pressure on miners would likely be easier than in the widely scrutinized Bitcoin network.

Yet, new blockchains are essential, and they continue to be developed.

The first blockchains beyond Bitcoin were merely its imitators. Some of the most popular to survive to this day are Litecoin and Dogecoin.

Over time, crypto enthusiasts wanted more functionality, leading to blockchains with additional features:

• Monero — a blockchain where mining isn’t limited to specialized devices (ASICs), allowing anyone with a GPU to mine.
• Ethereum, Tron, Solana, and others — blockchains where more complex smart contracts are possible.
• Polkadot, TON, and Avalanche — blockchain systems that optimize resources by distributing transactions across multiple chains.
• Komodo and Qtum — multi-faceted blockchains designed to facilitate interactions between existing blockchain platforms.

Nearly every blockchain’s white paper outlines the specific issues it addresses. There are blockchains with near-zero fees for micropayments (Nano, Aptos), those designed for storing arbitrary files (Filecoin, Storj), those for storing biometric data (Worldcoin), for monetizing data streams (NYM), and private blockchains accessible only to authorized users (like CBDC blockchains).

Thus, anyone needing a blockchain who isn’t satisfied with popular options can look for lesser-known solutions tailored to specific issues and features.

Outlook for Multiple Blockchains

In the blockchain industry, well-established blockchains can’t absorb users of niche solutions by simply adding specific functions — there’s no available space. Competition arises only among blockchains offering similar solutions (e.g., Ethereum, Tron, and Solana) or addressing similar problems (e.g., Dash, ZCash, and Grin). Every genuinely innovative blockchain solution finds users, fostering a healthier atmosphere in the blockchain industry than in other fields.

Even the same users can employ different blockchains for different purposes. So, any blockchain offering a solid solution to a current issue has a good chance of survival and further development. Users can trust that any well-designed blockchain will continue to operate. Blockchain’s decentralized nature ensures its persistence under any circumstances.

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