ZHANG: Blockchain is the underlying technology behind bitcoin and, to put it simply, consists of two parts: one part is block and the other part is chain. The latter is a chain of ownership. The digital coin of bitcoin is represented by the total history of ownership passing from the initial owner to the next owner to the next. All of these transactions are securely encrypted. Block refers to putting transactions—it could be a couple or hundreds or thousands—together into a block. These blocks would be validated by the “validation nodes” in the bitcoin network. If we look into the mechanism behind it, blockchain is actually a distributed database, or ledger, where the nodes in the network keep the balances of all the other nodes. Any node automatically keeps the history of the transactions of all the other nodes. That is the distributed layer of a blockchain, which makes it so special.
On top of that, you can have a smart contract layer. If you think about the bitcoin blockchain as cash transactions, basically this is additions and subtractions on the distributed ledger of balances. If you extend that to more sophisticated math, you can have programs on these distributed ledgers. You can have stocks, bonds, credit default swaps, insurance contracts, all of these can reside on the distributed ledger, and that is what we call smart contracts.