Blockchain is a distributed database or digital ledger of transactions that is duplicated and shared across the entire network of computer systems on the blockchain. Essentially, it is a continuously growing list of records called blocks which get linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block, a timestamp, and transaction data.
How Does Blockchain Technology Work?
For a blockchain network to work, it relies on a peer-to-peer network of public nodes running cryptographic code and stored in a distributed public database. When a transaction is initiated, it is broadcast to the peer-to-peer network for validation. Through consensus algorithms like proof-of-work, a mathematical puzzle is solved with computers competing to be the first to solve it and add the block of transactions to the chain. This adds a block to the blockchain, making past blocks even more secured as adding new blocks requires recalculation of the hashes of previous blocks.
The distributed ledger means that a copy of the Blockchain Technology database is present in every participating node on the network creating transparency with an immutable record of all transactions. Each transaction is verified multiple times by unrelated nodes making the network highly secure. No transaction can be altered retroactively without the alteration of all subsequent blocks, making blockchain resistant to modification of data.
Key Advantages of Blockchain
Decentralization - As blockchains have no central authority, no single entity controls the ledger or network making it robust with no single point of failure or control.
Transparency - The blockchain is a transparent and complete record of transactions available to all parties with a copy of the ledger. There is visibility into transaction histories.
Immutability - It is extremely difficult or impossible to alter blockchain transaction records once added due to cryptographic security measures like hash pointers.
Security - The architecture of using digital signatures, public-private key pairs, and distributed consensus provide security against cyberattacks while eliminating the need for intermediaries.
Efficiency - Transaction verification, validation and settlement occur simultaneously in minutes through distributed consensus without intermediaries creating opportunity for cost and time savings.
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