As the name suggests, a blockchain is basically a continuously growing list of digital records called blocks, which are linked and secured using cryptography. Although a group of researchers first described this technology in 1991, the technology remained largely unused until 2009 when Satoshi Nakamoto used it to create the first decentralized digital currency called Bitcoin and in the process, created the BTC blockchain as well. With that in mind, there is some more information about blockchains.
Instead of using a central authority, such as a financial institution, to manage the chain, blockchain uses a peer-to-peer (P2P) network. In other words, virtually anyone with an Internet connection can join a blockchain network. When a new computer (node) joins the network, it gets a full copy of the blockchain ledger, allowing the node to verify that the ledger is still in order. With an entire P2P network looking after the blockchain, it becomes nearly impossible to tamper with the blocks. Because of this, blockchains store information permanently across a network of personal computers. Put another way, a blockchain not only decentralizes information but also distributes it too.
Because each block on a blockchain contains a hash of a previous block and a timestamp, the blocks on a blockchain essentially form a chronological chain. While members of a blockchain can view and add to a blockchain, they cannot edit the information that’s already there. To enforce this, blockchains generally use a form of math called cryptography. It is important to note that different blockchains store different information. The BTC blockchain, for example, stores the details about a Bitcoin transaction including the sender public signature, receiver public key and the number of coins transferred.
Because modern computers can literally calculate hundreds of thousands of hashes per second, blockchains typically use something called the proof-of-work mechanism to ensure blocks remain tamper-proof. This mechanism works by slowing down the network, protecting the network from tampering. For instance, mining a new block on the Bit blockchain takes about 10 minutes.
When a new block is added to the blockchain, every node on the network receives a copy of the block. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to its own blockchain, meaning all nodes on the network create consensus.
Benefits of Blockchain Technology
By using cryptography and mathematics, blockchain provides an open, decentralized database of any transaction involving the exchange of value including storing medical records, creating a digital notary, as well as sending and receiving money. By doing this, it eliminates the need for third party trust organizations such as notaries, banks, and even governments. As a result, it offers a more cost-effective, secure and convenient solution of exchanging value over the Internet.
A blockchain is basically a P2P decentralized database that can be used to record any transaction involving the transfer of value over the Internet. Some of the benefits of blockchains include anonymity, security (makes use of both a public and private key as well as a secure wallet), and relatively inexpensive compared to traditional money transfer solutions.