A blockchain is a specific type of database.

Most databases you encounter through apps and websites are owned and maintained by individual companies or people. This makes them fast and efficient but susceptible to corruption—deliberate or accidental. A database can be lost, modified, or hacked. The company maintaining the database can even go out of business, making the data useless to an end-user. When an app uses a blockchain to store its data, the data are duplicated across many machines.

In some cases, millions of machines worldwide make up a blockchain network, and these machines are maintained and owned by many individuals and companies. As data are created, they are duplicated across all of those machines.

If any individual machine, person, or company has a problem with data corruption, the error is corrected by checking the other machines. In a way, they “vote” on the correct version of the data. This is sometimes called a “consensus method.” It is one of the blockchain’s most powerful mechanisms.

When people say blockchains are “decentralized,” they’re usually referring to the fact that no one machine, person, or company can override the consensus method; therefore, no one “controls” a blockchain.

There are many different blockchains with variations on how they are governed. And there are many different “applications” built on top of blockchains. The most famous “application” built on top of a blockchain is Bitcoin, a digital currency outside the control of any company or government.

A new wave of “applications” built on top of blockchains include non-fungible tokens (NFTs), soulbound tokens (SBTs), and decentralized autonomous organizations (DAOs), among others.

Wallets serve as a user’s account on a blockchain.

Users can send, receive, and spend on a blockchain network. These transactions are verified and secured by the blockchain. In this way, wallets and the user accounts they represent are kept accurate. This is because all wallet activity is verified and recorded on the blockchain.

Tokens are the units of exchange within a blockchain network.

They can represent any type of data. There are many types of tokens. A cryptocurrency is a token that is ascribed a value on a blockchain and is sent, received, or spent as a currency.

A smart contract is a computer program written and deployed to a blockchain.

Some blockchains, such as the Ethereum blockchain, allow smart contracts to perform logical operations in the same way a more standard programming language does.Unlike standard programming languages, which require a device like a server or a smartphone to run their programs, a smart contract runs on the blockchain. In this way, blockchains like Ethereum can be thought of as one giant shared computer that nobody owns.

A non-fungible token (NFT) is a different type of token that can be linked to another asset.

These assets can be digital art files (a popular use of NFTs today), property deeds, or any other illiquid asset that needs to be made more easily tradable.The key point of an NFT is that it is non-fungible, meaning it is distinct, unique, and scarce.

Soulbound tokens (SBTs) are another type of token.

Unlike NFTs, soulbound tokens describe something specific about the holder of the token and therefore cannot be sold or transferred. An example of a soulbound token might be a digital diploma from a university that a university has saved to the blockchain and sent to a recently graduated student. The token represents a particular accomplishment or skill that the graduate has earned. In the same way that it would be impossible for the graduate to sell the knowledge in her brain from her time at the university, neither can she sell a soulbound token commemorating her accomplishment.

A decentralized autonomous organization (DAO) is a new way of structuring and organizing a group of people through the blockchain.

Corporations might have charters, boards of directors, and executives that make decisions on the company’s behalf. However, with a DAO, all governance is performed either automatically through rules written in a “smart contract” or by a digital vote of all the people who own the DAO tokens.

DAOs are a new and exotic way to organize groups of people to accomplish a goal, and some states are even recognizing them in the United States as a new type of corporation.

Decentralized Finance is a name for a whole category of applications that use smart contracts to offer many of the same services that banks have traditionally provided. DeFi products can lend money, pay interest, and invest in real-world financial products without bankers, accountants, or brokers.