Each blockchain or “distributed ledger” must follow a consensus protocol. This is simply the system by which all the computers in the network agree on its current state. Blockchain consensus protocols are designed to be decentralized: agreement can be reached without appeal to the authority of any single party.
Let’s consider the “Proof of Work” protocol used by Bitcoin. This was the first implementation of a blockchain, and many chains continue to use variations of its protocol. It’s also where the word “blockchain” comes from: transactions are recorded in groups, called “blocks”, which are strung together in a “chain”.
Each computer in the Bitcoin network keeps a copy of the entire blockchain. To add transactions to the chain, computers must solve cryptographic puzzles. When a computer solves a puzzle, it can record a bundle of transactions, adding another block. The chain continues to grow, recording more transactions, as different computers in the network solve puzzles and add blocks.
Solving these puzzles secures the chain. The network counts the longest version of the blockchain as official. If someone wishes to spend the same coin twice, they have to re-compute the puzzle for the block that recorded the first time it was spent. However , they also have to re-compute the puzzles for every subsequent block in the chain. If they fail, their “fraudulent” version of the blockchain will be shorter than the “official” version, which will have continued to grow in the meantime. To achieve this, an attacker would need to control more computing power than everyone else in the Bitcoin network. This is impractical, so long as the network remains sufficiently decentralized.
Other consensus protocols exist, such as “Proof of Stake”. This replaces Bitcoin’s solution, which relies on computing power, with game theory: participants are given a variety of economic incentives to ensure that they keep the chain secure.
There is a whole variety of both Proof of Work and Proof of Stake protocols, as well as distributed ledgers that don’t rely on “blockchains” but other constructs, such as directed acyclic graphs (DAGs).
What is important to remember is that all these solutions are decentralized, allowing for the trustless digital representation of ownership transactions.
Nash is committed to preserving the decentralized nature of blockchains. Our tools make it easy for customers to hold and trade assets across a number of blockchains, which otherwise do not talk to each other and require different software to issue commands. Nash does not replace different blockchains with our own database, but lets you interact with them directly. This is what makes the Nash Exchange a decentralized exchange, as opposed to a centralized exchange.