A blockchain is similar to a database. However, unlike conventional databases, it’s a shared ledger. It’s called distributed ledger technology (DLT) because it’s shared among many computer nodes.
You must have heard of the blockchain in relation to Bitcoin and cryptocurrency. Cryptocurrencies like Bitcoin are founded on blockchain technology to facilitate secure data transfer. However, this is not to say that blockchain is only limited to the crypto space. It finds use in diverse industries like healthcare and finance because it makes the data immutable.
This unique record-storing technology makes hacking impossible. It’s a digital system for recording transactions where data can be kept in different places simultaneously. Every computer or “node” in the blockchain has a copy of this database. This prevents any single point of failure because all data copies are validated simultaneously.
How Does The Blockchain Work?
The blockchain has programs or scripts conducting tasks like in a database. They enter and access data and save it in a secure place. As the blockchain is a distributed ledger, copies stored on different machines must match for the data to be valid.
The blockchain will collect data and enter this into a block, much like a spreadsheet cell. When this is full, an encryption algorithm encrypts the data and produces a “hash.” The hash is a hexadecimal number placed in the block header and encrypted with the block data. Transactions follow a specific process that depends on the type of blockchain.
The whole blockchain works to “solve” the hash, and each computer generates a hash. This process goes on until miners generate a valid hash. This process of generating random hashes is called “proof of work,” which continues until the specific “hash” is reached. This explains why the network uses so much computing power.
When a data block is closed, the transaction is said to be complete. However, the block can be valid only when other blocks validate it. Confirmation may take a while. This is what happens in the Bitcoin network. However, it’s not the same for all cryptocurrencies; for instance, the Ethereum network follows a distinct process.
Blockchain technology is advantageous because the data is spread across multiple nodes in different locations. This creates redundancy and secures the data. If anyone attempts to change a record at a place, other nodes will prevent it. So, no node can alter data inside the blockchain.
This way, no single node within the network can alter information held within it. This makes the data that has been recorded and validated immutable and irreversible. This is why the blockchain finds use in different industries for storing data like state IDs, legal contracts, and company inventory.
The blockchain is decentralized, and transactions can be viewed by an individual node or through blockchain explorer. Every node has a copy and gets updated whenever new data blocks are added to the network. This makes it possible to track the data at all times. Exchanges have been victims of hacking and cyber thefts. It has led to losses for crypto investors. However, with the blockchain, you can track the money because it’s accessible to anyone online. So, all blockchain transactions are transparent.
These advantages have made blockchain technology one of the most disruptive technologies to take the world by storm. Experts are keen to use these advantages to make data transfers more secure, quick, and hassle-free.