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What is a Blockchain? How does it work


A group of people holding interconnected blocks representing the decentralized Blockchain technology

What exactly is a Blockchain?


A blockchain is a type of database where transactions are not managed by a single entity, but rather by a decentralised, distributed ledger that records the full transaction history. The database is distributed around the world on thousands of devices. These devices are frequently referred to as 'nodes' in this context.


A blockchain makes it difficult to hack or manipulate the system since identical copies of the database are spread across an entire network of computers. Whilst cryptocurrency is now the most prominent use for blockchain technology, it has the potential to serve a broad range of applications in the future.


At its core, blockchain is a distributed digital ledger that holds any type of data. A blockchain, for example, might store information on cryptocurrency transactions or the ownership of Non-Fungible Tokens (NFTs), a type of digital asset that represents real-world things such as one-of-a-kind works of art. Blockchain technology has also been utilised as a digital ledger to authenticate and monitor diamond provenance, qualities, and history.


Any standard database can store the information given in the preceding instances. The blockchain, on the other hand, is unique in that it is decentralised. Rather than being kept in a single location, many identical copies of a blockchain database are kept on various computers distributed over a network.


How does a Blockchain work?


When new data is introduced to the network, such as the latest transactions of a currency, a new block needs to be added to the chain. However, for the block to be added, the data in the block needs to be authenticated by the network of nodes. Once consensus is reached by the nodes (i.e they agree that the block is accurate), the block is added to the chain, with the underlying transactions recorded in the distributed ledger. From the beginning of the ledger to the last addition, blocks are securely linked together using cryptology and hashes to build a secure digital chain.


To remain identical, all the nodes are required to update their version of the blockchain ledger. The way authentication and cryptology is used to add new blocks underpins why blockchain is regarded as highly secure. In the case of Bitcoin, this authentication process may entail checking that new transactions in a block were not fraudulent, or that coins were not spent more than once. Unlike a standalone database or spreadsheet, where modifications to a single version can be made without qualification, this is not the case with bloackchain.


As a reward for their efforts in validating new blocks, nodes are usually given new amounts of the blockchain’s native currency.


What are two types of Blockchains?


Public: Blockchains are available in both private and public forms. Anyone with access to a public blockchain can read, write, or audit the data on the blockchain in question. Because no single party controls the nodes, changing the transactions documented inside a public blockchain is challenging. Bitcoin, Ethereum and Dogecoin are all examples of public blockchains.


Private: A private blockchain, on the other hand, is managed by an organisation or group. The group determines who is invited to the system and has the right to change the blockchain. A private blockchain is more similar to an internal data storage system that is distributed across numerous nodes to improve security.

 
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