Blockchain is a digital ledger that records transactions and is maintained by a network of computers. It is difficult to hack or alter. Blockchain technology allows individuals to communicate directly with one another without the need for intermediaries such as a bank, government, or any other third party.
Cryptography is used to link together the growing number of records (called blocks). Every transaction is independently verified using a peer-to-peer computer network, and each transaction is time-stamped before being added to a growing data chain. The data can’t be changed once it is recorded.
Blockchain technology is becoming increasingly popular due to the increasing use of bitcoin, Ethereum, and other cryptocurrencies. It has potential applications for legal contracts and property sales, medical records, and any other industry that requires authorization and recording of a series of transactions.
Blockchain work concept
Blockchain technology can be compared to the internet in that it relies on a distributed network and not just one server.
Blockchain is a distributed ledger, also known as a decentralized or distributed ledger, that can be accessed by a variety of computers (called nodes) to coordinate, track, announce and coordinate synchronized transactions. This is in contrast to traditional trading models which rely on an exchange or clearinghouse that tracks everything in one central ledger.
Every node of the decentralized blockchain organizes new data in blocks and then chains them together in “append-only”. This append-only structure is a key part of blockchain security. None of the nodes can modify or delete data from blocks before them. They can only add to the chain. The core security feature of blockchain is that the chain cannot be altered or deleted.
Participants can confirm transactions by referring to the chain. This eliminates the need to have a central clearing authority.
How can the blockchain be decentralized?
Imagine a company that owns 10,000 computers and uses them to maintain a database with all client information. The company has a warehouse that houses all these computers. It also has complete control over each computer and the information within them. However, this is a single point for failure. What happens if there is no electricity? What happens if the Internet is cut? What if it is completely destroyed? What happens if an unsavory actor deletes all data with one keystroke? The data can be lost or corrupted in any event.
A blockchain allows data from a database to be distributed across multiple network nodes in different locations. This creates redundancy and protects the integrity of the data. If someone attempts to alter a record at a particular instance of the database, all other nodes will not be affected. One user could alter Bitcoin’s transaction record, and all the other nodes would cross-reference to find the correct node. This system allows for a transparent and exact order of events. It is impossible for anyone node to alter the information within the network.
This makes it easy to retrace the history and information (e.g. transactions in a cryptocurrency) that has been stored. This record could include a list or transactions, but it is also possible for a blockchain not to have any other information, such as legal contracts, state identifications, and user IDs.
Blockchain: Transparency and anonymity
All transactions made on the Bitcoin blockchain network are recorded on all computers. Transparency is assured because transactions are transparent. The address and transaction history for bitcoin wallets that hold the cryptocurrency are publically viewable. However, the identities of the wallet owners connected to these public addresses are not recorded.
The transaction is less likely to involve human interaction and therefore has a lower chance of error. Each transaction must be verified and recorded by the majority of network nodes. This makes it virtually impossible to alter or manipulate information. This prevents people from spending bitcoins more than once.
Although blockchain is susceptible to hacking, being decentralized makes it more secure. Hackers or criminals would need to have control over more than half the computers in a distributed ledger in order to alter it (although this is unlikely).
Blockchain networks such as Ethereum and Bitcoin are the most well-known and widely accessible. Anyone can join these networks with an internet connection and a computer. Security is not a problem when there are more people participating in a blockchain network. More participants mean more people checking each other’s work and calling out the bad actors.
This is one reason private blockchain networks that require invitations to join can be paradoxically more susceptible to manipulation and attack.
We now know that blocks on Bitcoin’s Blockchain store information about monetary transactions. There are currently more than 10,000 cryptocurrency systems that run on the blockchain. Blockchain is a reliable method of storing transaction data.
Walmart, Unilever, and AIG are just a few of the companies that have already implemented blockchain. IBM, for example, has its Food Trust blockchain that tracks the route food products take to reach their destinations. Microsoft is using blockchain technology to allow people to control their digital identities and give them control over who has access to that data.
Blockchain could be used for a decentralized database to ensure that artists have their rights to music and to distribute royalty payments to them in a transparent and timely fashion. Open-source developers could benefit from the same blockchain technology.