What is blockchain
Blockchain was one of the major tech stories of the last decade. Everyone seems to be talking about it, but underneath the superficial conversations, there is not always a clear understanding of what blockchain is or how it works. Despite its reputation for ambiguity, the basic idea behind blockchain is quite simple. And it has great potential to change industries from the bottom up.
Blockchain is a technology that enables secure information sharing. Of course, the data is stored in the database. Transactions are recorded in a book of accounts called the general ledger. Blockchain is a type of distributed database or ledger, one of the major technology trends today, which means the ability to update blockchains is distributed among nodes or participants of a public computer network. Plus or private. This is called Distributed Ledger Technology, or DLT. Nodes are incentivized with digital tokens or currencies to perform blockchain updates. The blockchain allows for permanent, immutable, and transparent recording of data and transactions. In turn, this makes it possible to trade anything of value, whether it’s a physical object or something less tangible.
A blockchain has three central properties. First, the blockchain database must be cryptographically secure. This means that to access or add data to the database, you need two cryptographic keys:
A public key, which is basically an address in the database, and a private key, which is the private key that needs to be authenticated by the network. Next, the blockchain is a digital log or database of transactions, meaning it happens entirely online
And finally, a blockchain is a shared database on a public or private network. One of the most famous public blockchain networks is the Bitcoin blockchain. Anyone can open a bitcoin wallet or become a node on the network. Other blockchains can be private networks. These apply more to banking and fintech, where everyone needs to know exactly who is involved, who has access to the data, and who has the private key to the database.
Other types of blockchains include federated blockchains and hybrid blockchains, both of which combine different aspects of public and private blockchains.
How does blockchain work ?
When data on the blockchain is accessed or modified, the record is stored in a “block” along with the record of other transactions. Stored transactions are encrypted via unique, immutable hashes. New data blocks do not overwrite old blocks; they are chained together so that any changes can be tracked. And since all transactions are encrypted, records are immutable, so any changes to the ledger can be recognized and discarded by the network.
These encrypted data blocks are permanently “chained” together, and transactions are recorded sequentially and indefinitely, creating a perfect audit trail that allows visibility of previous versions that of the blockchain.
When new data is added to the network, the majority of nodes must verify and confirm the legitimacy of the new data based on rights or economic incentives, also known as consensus mechanisms. When consensus is reached, a new block is created and attached to the chain. All nodes are then updated to reflect the blockchain ledger. In a public blockchain network, the first node that reliably proves the legitimacy of a transaction receives an economic incentive. This process is called “mining”.