What is Blockchain?
Blockchains are distributed databases used to securely store data and information in a publicly accessible way. Rather than relying on a single centralized server, blockchain-powered crypto networks store data across distributed devices (nodes) worldwide.
Ultimately, these distributed devices can be anything, such as computers, laptops, or even bigger servers. They serve as the framework of the blockchain, communicating with each other to enable the storage, spread, and preservation of data without the need for a trusted third party. Thanks to nodes, the blockchain provides an immutable record — it’s a decentralized proof of ownership vehicle that is unlike anything we’ve seen before.
Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and viewable to anyone.
How Does a Blockchain Work?
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is the foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. This is why blockchains are also known as a distributed ledger technology (DLT).
First proposed as a research project in 1991, the blockchain concept predated its first widespread application in use: Bitcoin, in 2009. In the years since, the use of blockchains has exploded. The creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts has exploded blockchain use.
Imagine that a company owns a server farm with 10,000 computers used to maintain a database holding all of its client’s account information. This company owns a warehouse building that contains all of these computers under one roof and has full control of each of these computers and all of the information contained within them. This, however, provides a single point of failure. What happens if the electricity at that location goes out? What if its Internet connection is severed? What if it burns to the ground? What if a bad actor wipes everything with a single keystroke? In any case, the data is lost or corrupted.
What a blockchain does is allow the data held in that database to be spread out among several network nodes at various locations. This not only creates redundancy but also maintains the fidelity of the data stored therein—if somebody tries to alter a record in one instance of the database, the other nodes would not be altered and thus would prevent a bad actor from doing so. If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each other and easily pinpoint the node with the incorrect information. This system helps to establish an exact and transparent order of events. This way, no single node within the network can alter information held within it.
Because of this, the information and history (such as transactions of a cryptocurrency) are irreversible. Such a record could be a list of transactions (such as with a cryptocurrency), but it is also possible for a blockchain to hold a variety of other information like legal contracts, state identifications, or a company’s product inventory.