Basics of Blockchain Technology: Distributed Ledger, Nodes, and Consensus Explained

The basics of blockchain technology are at the core of today’s fastest-growing innovations, impacting industries from finance to logistics to digital art. As cryptocurrencies and decentralized applications spark debates about the future of value and trust, understanding blockchain’s foundational concepts is critical—not just for tech experts, but also for investors, business leaders, and curious newcomers. Imagine being able to transfer value worldwide with the same simplicity as sending an email, or verify product authenticity instantly, without relying on third parties. That’s the kind of scenario blockchain technology enables.
In this guide, you’ll learn exactly what makes blockchain technology revolutionary: the distributed ledger, nodes that form its network, and robust consensus mechanisms that secure its operations. We’ll break down the technical jargon, highlight major industry trends, and answer all the “how” and “why” questions most people have so you can confidently speak to the basics of blockchain technology. Ready for a few surprises? You’ll discover how blockchains achieve trust without intermediaries, their real-world applications, and must-know challenges ahead.

Understanding the fundamentals of blockchain technology.

Understanding the Basics of Blockchain Technology

Blockchain technology has revolutionized the way digital information is recorded, verified, and shared. Yet, many people wonder what really makes this system special compared to traditional digital databases. By exploring its mechanics and practical applications, we reveal why blockchains inspire confidence among users, even if they’ve never met.

The Fundamental Idea of Blockchain

A blockchain is fundamentally a digital ledger. Unlike standard ledgers maintained by a single authority, it operates within a distributed network of computers (or nodes). Each time someone makes a transaction, the details are encrypted and combined with other transactions into a “block.” These blocks are connected, forming a chronological sequence. This process not only secures the data but ensures any alteration is extremely difficult. For example, Bitcoin’s blockchain links thousands of blocks, securing millions of transactions globally every year—a practical showcase of a robust distributed network powered by cryptography.

Transparency and Immutability

Because the blockchain’s ledger is shared across the entire network, every approved transaction becomes public and timestamped. This transparency allows anyone to trace or audit entries, a feature valued in sectors like supply chain logistics. Once information is added, it’s virtually impossible to edit or erase, thanks to cryptographic linking. As a result, companies in finance and healthcare are now piloting blockchains to prevent record tampering and increase auditability—an industry insight that highlights blockchain’s expanding appeal.

To clarify these defining features, consider these key characteristics:

• Digital ledger maintained by a network: Shared responsibility prevents single points of failure, as seen in global payment systems like Ripple.
• Transactions grouped and sealed in blocks: This enables fast, verifiable data processing, supporting high-speed crypto trading platforms.
• Cryptographically linked and time-stamped: Each entry’s reliability is continually reinforced by network consensus algorithms.
• Transparency and public auditability: Open access enables easier regulatory compliance, which is crucial in tightly governed sectors.

Distributed Ledgers: Foundation of Blockchain

What is a Distributed Ledger?

A distributed ledger is a digital database synchronized and maintained across multiple computers, which are known as nodes. Unlike traditional systems where one server manages all records, every node in a blockchain network holds an identical copy. Any update becomes visible and verifiable instantly throughout the network. For example, IBM’s Food Trust platform uses a distributed ledger to enhance visibility and reliability in food safety monitoring for global retailers and suppliers.

Industry Insight: If a single node fails, operations can continue seamlessly. This redundancy increases trust because the data is always accessible—even when technical glitches strike.

Key Advantages Over Centralized Systems

Choosing distributed ledgers over traditional centralized databases offers clear technical and business benefits. Chiefly, it eliminates central points of failure—making security breaches and downtime far less likely. As a result, organizations benefit from lower maintenance costs and greater system resilience. Downtime for major centralized systems can cost companies upwards of $300,000 per hour, while distributed ledgers are designed to prevent such expensive outages.

To clarify how these two models differ, consider the detailed comparison below. It outlines specific features like control, failure risk, update process, and vulnerability to tampering, providing unique analytical value for readers making architectural decisions:

This breakdown demonstrates how distributed ledgers deliver superior security, reliability, and efficiency, laying the foundation for modern blockchain solutions.

Nodes in Blockchain Technology

Nodes are the critical backbone of any blockchain network, responsible for keeping the system secure and operational. Each one acts as a participant that maintains, validates, and relays transaction data across the entire digital ledger. This decentralized process is key to ensuring data integrity and transparency—vital features which have enabled blockchain to disrupt traditional industries, from finance to supply chain management. For instance, Bitcoin’s network has thousands of nodes spread across the globe, reducing risk of data loss or manipulation, even if several nodes go offline.

What are Nodes?

In essence, nodes are computers or devices tied into the blockchain network. Their primary job is to process, store, and transmit blocks and transaction data. Because all nodes communicate and update simultaneously, manipulation becomes highly impractical. This structure inspires trust even among parties who have never met. Some readers might wonder if operating a node is complex—while it does require technical knowledge, user-friendly tools have greatly lowered the entry barrier. In the context of blockchain networks, such as Ethereum, nodes ensure decentralized application data remains trustworthy and accessible worldwide.

Types of Nodes

Understanding the main node types gives insight into the strengths of blockchain architecture. Here are the primary categories, each with unique roles and responsibilities:

• Full nodes: Store a complete blockchain copy and validate every transaction and block, which improves security and auditability. Bitcoin’s archival nodes are a classic example.
• Light nodes: Retain only essential information for quick synchronization. Mobile wallets often use light nodes to allow fast access without heavy storage demands.
• Mining nodes: Compete to solve cryptographic puzzles for block creation, playing a central role in Proof of Work systems like Bitcoin.
• Validator nodes: Engage in consensus processes, often used in Proof of Stake blockchains such as Ethereum 2.0, to maintain ledger integrity.

These distinctions allow the blockchain network to optimize for speed, storage, and security, adapting as technology and needs evolve.

The Role of Consensus Mechanisms in Blockchain

Consensus mechanisms are the backbone of blockchain security, enabling trust among nodes without any central intermediary. A well-designed consensus protocol ensures consistent and verifiable agreement across global participants, making blockchains robust even when facing technical glitches or malicious actors. Choosing the right consensus mechanism is vital, as it shapes a blockchain’s speed, decentralization, and resilience.

Achieving Trust Without Intermediaries

The genius of a consensus mechanism lies in its ability to make all nodes agree on a single blockchain ledger, even when some nodes fail or behave unpredictably. For example, in cryptocurrency networks like Bitcoin, consensus protocols prevent double-spending and guarantee that every transaction is recorded only once. In other words, trust is not placed in one central authority or a handful of validators, but distributed across the network using mathematics and game theory. This shift has vast implications for everything from banking to digital identity, as organizations can verify transactions transparently and securely—no notaries needed.

Popular Consensus Models

Selecting the best consensus model remains a lively discussion among blockchain developers. Each approach offers distinct advantages and trade-offs. Proof of Work (PoW), famously used in Bitcoin, validates transactions through computational labor, offering strong security but creating energy efficiency concerns. Proof of Stake (PoS) instead leverages participants’ cryptocurrency holdings, reducing energy consumption but introducing potential centralization. Delegated Proof of Stake selects validators via community votes—balancing speed with some risk to decentralization. Byzantine Fault Tolerance models, implemented in permissioned blockchains, are designed to resist failure even if a portion of nodes act maliciously. These differences continue to shape platform choices, as seen with Ethereum’s recent shift from PoW to PoS to address sustainability concerns.

• Proof of Work: Security is based on solving complex puzzles, requiring significant computation, as seen in Bitcoin mining.
• Proof of Stake: Validators are chosen based on the amount of cryptocurrency they hold and “stake,” as used in Ethereum 2.0.
• Delegated Proof of Stake: Community selects a small group of node validators, increasing scalability but posing potential risks if voting is concentrated.
• Byzantine Fault Tolerance: Consensus is achieved even if some nodes fail or act unpredictably, making it popular in enterprise blockchains concerned about reliability.

Industry Insight: Don’t underestimate the impact of consensus models—selecting the right protocol affects everything from transaction speed to regulatory acceptance!

Block Structure and Hashing Explained

Blockchain’s distinctiveness—and its security—springs from the robust structure of each block and the critical role of cryptographic hashing. Without these, the reliability of blockchain records would be in question, and many real-world applications would be unfeasible.

Anatomy of a Block

Every block inside a blockchain ledger serves as a secure digital record. It bundles transactions, captures a precise time-stamp for tracking, and includes a hash tying it to the previous block. Importantly, each block calculates its own cryptographic hash, acting as a digital fingerprint. For example, in Bitcoin’s blockchain, each 10-minute block might contain over 1,000 transactions and must reference the hash of the prior block, making the entire history traceable. This chain reaction of references has made major tampering in public blockchains virtually nonexistent—an impressive feat in cybersecurity.

Why Hashes Matter

Hashes transform any block data into a unique and fixed-length string. Even minor changes to transaction or time-stamp details will produce an entirely different hash, instantly alerting the network to potential tampering. In Ethereum’s platform, this mechanism not only secures funds but also supports self-executing contracts. As a result, trust is baked into every transaction. Industry insight: auditing firms increasingly use blockchain hashes for digital forensics to verify data integrity. Realistically, hashes are blockchain’s watchdogs—constantly on alert. This system, while robust, does depend on consistent implementation and will evolve with advances in quantum-safe cryptography.

Before delving deeper, here are the core elements found in every blockchain block:

• Transaction bundle: A selection of verified transactions, sometimes numbering in the thousands.
• Time-stamp for record: Stores the exact time of block creation for reliable sequencing.
• Hash of previous block: Creates a secure, chronological link between all blocks.
• Unique block hash for verification: Ensures data has not been altered since its creation.

Real-World Uses of Blockchain Fundamentals

Beyond Cryptocurrency

Blockchain technology has extensive applications that stretch well beyond digital currencies. Its immutable and transparent nature makes it exceptionally valuable in environments where trust and verification are critical. For example, supply chain industries employ blockchain to guarantee product traceability from origin to retailer, minimizing the risks of fraud. In healthcare, a distributed ledger securely manages patient records, reducing unauthorized access and data breaches. This fosters confidence among both practitioners and patients. Various nations are even piloting blockchain-enabled voting systems. These aim to provide tamper-resistant, auditable results, answering long-standing concerns over electoral integrity. Copyright management can see similar benefits by recording the provenance of creative works straight on the blockchain, enabling real-time, verified, and transparent ownership logs.

Notable Current Examples

Organizations across different fields now rely on distributed ledger solutions to drive efficiency and security. For instance, Maersk and IBM’s TradeLens platform uses blockchain to track shipments and documentation, significantly reducing transit processing times. In the healthcare world, Estonia has utilized blockchain to secure the e-Health records of over 1.3 million citizens since 2016. Meanwhile, NFT marketplaces certify digital art and collectibles, establishing verifiable proof of digital ownership—a must in the burgeoning creator economy. As technology evolves, analysts predict a 50% increase in enterprise blockchain adoption within logistics and medical data management by 2025.

To clarify these innovations, consider these industry use cases where blockchain’s core fundamentals deliver tangible results:

• Supply chain: Improved traceability, as seen with Walmart’s blockchain-powered food tracking, shortening recall times from seven days to 2.2 seconds
• Healthcare: Secure patient data storage in Estonia, where over 95% of health data is managed on blockchain
• Voting: Tamper-resistant electoral results in West Virginia’s pilot blockchain voting app for overseas military voters
• NFTs: Digital ownership verifications enabling artists to earn royalties on every resale, a massive shift in creative rights management

Key Features that Differentiate Blockchain

Security and Resilience

Blockchains pride themselves on robust security, achieved through the combined use of cryptography and distributed consensus mechanisms. Each transaction is encrypted and grouped into blocks, then chained together to form an immutable record—making unauthorized tampering virtually impossible. In a real-world test, the Bitcoin network has never suffered a successful double-spend attack, illustrating how effective its security model is. Unlike centralized databases vulnerable to single-point failures, blockchains can operate seamlessly even if many nodes are compromised. As a result, cyberattacks that can cripple traditional systems often have little or no effect on properly designed blockchain networks.

Decentralization Advantages

One of blockchain’s hallmark features is its decentralized nature, removing the control that centralized authorities hold in traditional systems. For instance, during political unrest, centralized financial platforms may freeze user accounts or block transactions—but decentralized blockchains remain accessible. This architectural choice helps blockchains maintain uptime and ensures transaction data cannot be easily censored or altered by a single entity. Industry insight: Ethereum’s uptime exceeded 99.98% over the last five years, outpacing many centralized fintech solutions.

The following comparison illustrates key technical and operational differences between blockchains and traditional systems, focusing on censorship resistance, immutability, user control, and core security foundations:

Pro Tip: When evaluating financial or data-sharing platforms, understanding these differences helps you select systems resilient against fraud, censorship, and data loss, especially in high-risk scenarios.

Blockchain Scalability: Current Issues and Solutions

Why Scale Matters

Blockchain scalability is a core challenge, especially as blockchain technology gains mainstream traction. When public blockchain networks face heavy user loads, performance issues arise—transactions become slower and fees spike. For instance, during the NFT boom of early 2021, average Ethereum gas fees soared above $70 per transaction. As a result, high costs discouraged smaller trades and drove users to seek blockchains with lower transaction costs.

Scalability concerns prevent many real-world blockchain use cases from achieving mass adoption. A common reader concern: can distributed network technology support the demand volumes found in global payment systems? According to a 2023 Deloitte survey, 60% of business leaders identified blockchain scalability as a top obstacle to implementing blockchain solutions in logistics and payments. This barrier is prompting enterprises to seek improved blockchain performance.

Solutions and Innovations

To overcome these hurdles, technologists are innovating across several fronts. Each approach offers unique benefits and drawbacks for network speed, security, and decentralization. Below are leading solutions shaping blockchain scalability and blockchain performance today:

• Layer 2 rollups: These process bundles of transactions off-chain, later settling them on the main blockchain. For example, Arbitrum’s rollup technology has demonstrated speeds beyond 40,000 transactions per second (TPS), far outpacing most public blockchains.
• Sharding: By dividing the blockchain state into parallel-processing shards, Ethereum aims to boost capacity in future upgrades, allowing the network to handle far more transactions simultaneously.
• Off-chain computation: Complex logic, such as private smart contract execution, happens outside layer 1, easing congestion. zkSync is one solution leveraging this model.
• Faster consensus models: Protocols like Delegated Proof of Stake (DPoS) or Practical Byzantine Fault Tolerance (PBFT) achieve faster finality—some networks process more than 5,000 TPS. However, they may sacrifice some decentralization for speed.

Industry Insight: As innovation progresses, the delicate balance between transaction speed and decentralization sparks ongoing debate across the blockchain community.

Blockchain Networks: Public vs. Private

Blockchain networks can be divided into public and private types. Each has distinct advantages and challenges, influencing which industries and organizations adopt them. Choosing between these blockchains shapes access, transparency, and operational control, impacting everything from voting systems to supply chain finance.

Public Blockchains

Public blockchains enable anyone to participate, validate transactions, and contribute to the network. Bitcoin and Ethereum are leading examples, offering unparalleled transparency. The open nature fosters broad trust: every transaction is visible and auditable. For instance, in 2021, over 400,000 daily Bitcoin transactions were broadcast to all. However, this inclusivity sometimes slows transaction processing, especially during network congestion. Pro Tip: For projects emphasizing transparency and community consensus, public blockchains are unbeatable for trust and broad participation.

Private Blockchains

Private blockchains restrict access, making them popular for businesses that need faster, controlled collaboration. Only selected entities can validate transactions, resulting in higher speed and confidentiality. For example, IBM’s Food Trust network helps global food suppliers trace products, shrinking recall times and boosting safety for shoppers. However, this comes at the cost of reduced transparency.

When evaluating blockchain networks, it’s helpful to examine core features and business implications:

• Open vs. closed access: Public chains are accessible to all; private chains limit participation to authorized entities, offering stronger control.
• Auditability: Public blockchains allow anyone to verify transactions, while private networks provide auditing only to select participants.
• Use cases by enterprise sector: Public blockchains shine in crypto finance; private chains serve healthcare, supply chain, and banking where data privacy matters.
• Permission requirements: Public networks have no entry barriers, but private blockchains enforce role-based access and compliance requirements.

Investing and Profiting from Blockchain Ecosystems

Engaging directly with blockchain ecosystems offers investors and enthusiasts diverse ways to participate in the new digital economy. From securing networks to building physical infrastructure, each approach carries different technical, financial, and operational requirements. Real-world examples, like early Bitcoin node operators who later became key industry voices, illustrate the strong correlation between early participation and long-term profit.

Participating in Network Consensus

Participating in network consensus is foundational to blockchain. Operating a node, staking coins, or contributing resources not only increases security but also provides financial incentives. For example, Ethereum’s shift to proof-of-stake lets users lock up ETH and earn an average annual yield of around 4–6%. This method is less energy-intensive than traditional mining, which is especially appealing for eco-conscious readers. However, while staking seems straightforward, actively monitoring performance and understanding slashing risks is essential. Pro Tip: Beginners often underestimate the technical upkeep involved in running a secure, reliable node.

Setting up Blockchain Infrastructure

Those willing to make a direct investment in blockchain infrastructure can purchase or rent specialized hardware, such as ASIC miners. For instance, Bitcoin mining farms in North America regularly deploy hundreds of ASIC miners to leverage energy cost advantages. As mining gets competitive, joining a mining pool helps individuals access stable returns.

To support readers transitioning into blockchain infrastructure, consider solutions that help monetize mining and staking setups. That’s why ad-insertion and sponsorship tools—like those available from ECOS—are relevant in this context.

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Exploring common methods for earning in blockchain ecosystems clarifies core pathways for both active and passive investors:

• Running a node: Operating a validator node provides network rewards and voting rights—think of Cardano’s self-managed pools.
• Staking: Delegating tokens to validators in proof-of-stake networks, often earning 4–10% interest depending on the blockchain.
• Mining hardware investments: Acquiring ASIC miners for Bitcoin or Litecoin mining with up-front costs, but potential for significant returns.
• Joining mining pools: Pooling resources to share block rewards and reduce income variance, a popular strategy for individuals.
• Exploring passive income opportunities: Leveraging managed staking services or cloud mining for lower-effort income generation—increasingly popular for time-strapped investors. For a closer look at enterprise-scale setups, see this mining farm.

Used and Budget Hardware Options in Blockchain

Why Consider Pre-Owned ASICs?

For many aspiring blockchain miners, investing in new ASIC miners or top-tier hardware can be financially unrealistic. Instead, pre-owned ASICs and refurbished equipment open doors to blockchain participation on a tighter budget. Buyers often discover that used gear delivers cost savings of 30% to 60% compared to factory-new models. One example: a refurbished Antminer S19 can often be sourced for half the price of a new S19, enabling a much quicker break-even period. As miners seek to upgrade, the secondary market is a natural place to find affordable, still-functional units.

Environmental concerns are another compelling reason. By choosing used ASICs over brand-new ones, miners contribute to waste reduction and decrease the industry’s overall environmental footprint. According to recent estimates, extending the life cycle of mining hardware could reduce associated e-waste by as much as 25% per year.

Choosing Reliable Sources

Shopping for used gear demands extra care. Unlike new products, used or refurbished ASICs come with shorter warranties, uncertain lifespans, and potential hidden issues. It’s critical to source equipment from reputable platforms or dealers that provide verifiable testing, transparency on device history, and real customer reviews. Industry anecdotes warn against “too good to be true” deals that often end in buyer regret or non-functional hardware.

Industry Insight: Sourcing hardware from trusted marketplaces helps safeguard your investment and mining uptime. To make informed decisions and access vetted options, consider exploring used ASICs curated by established providers.

• Cost savings: Used gear is often 30–60% less expensive than new hardware, allowing faster ROI.
• Environmental benefit: Choosing refurbished equipment reduces mining-related e-waste by extending product life cycles.
• Risks to assess: Buyer should carefully evaluate warranty terms and expected lifespan, as older ASICs may require more maintenance.
• Marketplaces to consider: Trusted platforms with verified reviews, such as ECOS, help avoid scams and failed investments.

Blockchain Security and Common Threats

Blockchain security remains a hotly debated topic, especially as adoption accelerates and new threats emerge. Major incidents have shaken user trust—remember the infamous DAO hack, where a flawed smart contract led to the loss of $60 million worth of Ether? As more value migrates onto immutable ledgers, understanding the risks and countermeasures is essential for anyone in the field.

Major Security Risks

The most serious blockchain security threats can undermine the trustless promise of decentralized technology. A well-known concern is the 51% attack, in which one entity controls most of a network’s mining power. In May 2018, the Bitcoin Gold network suffered such an attack, leading to double spending and serious financial losses. Similarly, phishing and social engineering scams manipulate users rather than code, often targeting wallet keys or exchange credentials. Vulnerabilities in smart contracts, such as the one behind the DAO incident, can also leave funds at risk. Finally, network partitioning attacks, sometimes called “eclipse” attacks, split the network and disrupt normal consensus processes.

Here are the blockchain security risks to watch for:

• 51% attack: When attackers control most computational power, double spends and network manipulation can occur.
• Phishing/social engineering: Scammers deceive users into revealing sensitive credentials; exchanges are frequent targets.
• Exploitable smart contracts: Bugs or flaws in contract logic may allow theft or unauthorized access, as seen in high-profile DeFi exploits.
• Network partitioning: Attackers isolate nodes, distorting consensus and increasing the odds of chain reorganization.

How to Strengthen Blockchain Security

To counter these risks, projects are intensifying scrutiny at every stage. Comprehensive code review and regular security audits catch issues before attackers can exploit them. In fact, according to ConsenSys Diligence, rigorous smart contract audits reduce vulnerabilities by over 70%. Bug bounty programs crowdsource penetration testing, empowering ethical hackers to find gaps. Decentralizing control by increasing the number and diversity of nodes also boosts resilience, making attacks like 51% takeovers vastly more expensive. Pro Tip: Even leading protocols like Ethereum prioritize community-driven audit initiatives. Regularly reviewing smart contract code and validating participants are no longer “nice to haves”—they’re essentials for serious blockchain projects.

The Future of Blockchain Technology

Mainstream Integration

Blockchain technology is steadily progressing into mainstream adoption, driven by large-scale pilots and proven solutions. For example, central banks worldwide are testing digital currencies; the European Central Bank recently advanced to the preparation phase for a digital euro. As a result, established industries like supply chain management and cross-border payments are eager to adopt blockchain for efficiencies and transparency. However, regulatory uncertainty and interoperability challenges still require innovative technical and organizational solutions. Industry Insight: Early adopters who navigate compliance and integration hurdles may secure significant competitive advantages as the ecosystem matures.

Groundbreaking Developments

Rapid progress in blockchain security and scalability is reshaping expectations for future applications. Quantum-resistant cryptography, though still in testing, promises to safeguard digital assets from the looming threat of quantum computing, which could break traditional encryption. AI-powered consensus models are being researched to dynamically optimize network performance, enabling blockchain networks to scale with global demand. Pro Tip: Stay updated on quantum-resistant blockchain projects, as these may define the next security standard. Meanwhile, sustainable blockchain initiatives, such as eco-friendly proof-of-stake systems, are gaining traction in response to environmental concerns about energy use—Ethereum’s transition in 2022 reduced its network energy consumption by over 99%.

Before exploring these innovations even further, review some of the most significant focus areas in blockchain’s ongoing evolution:

• Central bank digital currencies (CBDCs): National digital currency initiatives reshaping finance
• Quantum resistance: Cryptography defending against quantum attacks
• AI with blockchain: Smarter and more adaptive blockchains
• Sustainable blockchain initiatives: Green solutions addressing energy efficiency

Conclusion

Key Takeaways from Blockchain Basics

Blockchain is more than a buzzword; it’s a profound shift in how we store, share, and validate information. Built on distributed ledgers and maintained by decentralized nodes, blockchain technology ensures robust transparency and data integrity. Consensus mechanisms like Proof of Work and Proof of Stake add layers of trust, minimizing the risks of manipulation or fraud. For example, supply chain leaders now use blockchain to trace goods from origin to delivery, drastically reducing instances of counterfeiting. As a result, industries from finance to healthcare are crafting innovative solutions with added transparency and resilience. Industry Insight: Organizations slow to adapt may fall behind as blockchain redefines competitiveness across sectors.

Next Steps and Community Involvement

To deepen your blockchain expertise, consider joining innovative blockchain projects or engaging in online discussions. Experimenting with modest investments—guided by tools and education—can offer valuable, hands-on experience. Still pondering how distributed ledgers can benefit your field? Share your thoughts with others; this vibrant community values your curiosity. Moreover, before diving in financially, leverage analytical tools to project potential outcomes. To make informed investment decisions and analyze projected returns based on data-driven insights, it’s wise to use the ECOS profitability calculator. Remember, the blockchain journey is collaborative—your unique perspective can help drive collective growth and innovation in this evolving landscape.