A blockchain is a shared database between the nodes of a computer network. As a database, it electronically stores information in digital format. Blockchains are known for their significant role in cryptocurrency systems, such as Bitcoin, for maintaining a safe and decentralized record of transactions. The innovation is that Blockchain guarantees the accuracy and security of a data record and creates trust without a third party.
One key difference between a blockchain database and a traditional database is the method of securing data. A blockchain accumulates information in groups, “blocks” that keep lots of information. Blocks have certain storage capacities and, once filled, are closed and connected to the previously served (filled) block, making a chain of data called the “blockchain.” Following that freshly added block, all new information is arranged into a newly formed block that will fill the chain. A database structures its data into segments; as its name implies, a blockchain structures its data into blocks strung together. This data structure essentially makes an invariable timeline of data when performed in a decentralized nature. Once a block is full, it becomes a part of this timeline. Each block is given a precise timestamp when it is attached to the chain.
- Blockchain is an innovative shared database. It stores information blocks connected via cryptography.
- A new data goes to a new block. Once the block is full, it is chained onto the previous block, making the data chained together.
- A blockchain can store different types of information, but it mainly holds data of transactions.
- In Bitcoin’s case, it is used in a decentralized as all users collectively maintain control.
- Decentralized blockchains are unchangeable, meaning that the data entered is immutable. For Bitcoin, transactions are permanently recorded, and anyone can see.
How Does it Work?
The purpose of Blockchain is to enable recording and sharing of digital information, without the ability to edit. Therefore, a blockchain supports immutable records or transactions that are almost impossible to change, delete, or destroy. This is the reason why blockchains are also called DLT – Distributed Ledger Technology. In 1991, the blockchain concept was first introduced as a research project. In 2009, it predated its first application in use – Bitcoin. After that, they were used in decentralized finance (DeFi) applications, various cryptocurrencies, non-fungible tokens (NFTs), and smart contracts.
Blockchain allows the data held in the database to be spread out in several network blocks at various locations. This action creates redundancy and maintains the accuracy of the stored data: if somebody tries to change a record at one location, the others can keep the information. This system serves to build an accurate and transparent order of events without altering information held within it.
Because of this structure, the history of transactions of a cryptocurrency and other information is immutable. It can hold various other information, including state identifications, legal contracts, or a company’s product inventory.
Because of the Blockchain’s decentralized nature, all Bitcoin’s transactions can be viewed by having an individual node. Besides that, anyone can see transactions occurring live by using blockchain explorers. Each node has its chain copy that gets updated as new blocks are verified and added.
The records stored in the Bitcoin blockchain are encrypted, which means that only the owner can decrypt it to reveal their identity. As a result, the users can be anonymous while maintaining transparency.
Is it Secure?
Blockchain technology reaches decentralized safety and trust in some ways. First, new blocks are regularly stored chronologically. After adding it to the end of the Blockchain, it is tough to go back and alter the contents unless most of the network has agreed to do this. That happens because each block comes with the block’s hash before it and the time stamp.
A mathematical function creates hash codes that turn digital information into a series of numbers and letters. If in any way that information is edited, the code of the hash changes as well. For example, a hacker running a node wants to change a blockchain and take cryptocurrency from everyone. If they could alter their own single copy, it would not align with others’ copies. Everyone would see this one hacker’s copy stand out, and would then consider this version of the chain illegitimate. Succeeding with such a plan would require the hacker to control and alter at the same time around 52% of the blockchain copies. Only after that, their new copy can become the majority copy. Such an attack would also require big money and resources to redo all of the blocks.
Because of the size of many cryptocurrency networks and their growing speed, the price to pull off such an action would be impossible. Besides being extremely expensive, it would also be unprofitable. Doing such would not go unrecognized because network members can spot such radical alterations to the Blockchain.
Blockchain vs. Banks
In 1991, two researchers, W. Scott Stornetta and Stuart Haber, first outlined Blockchain technology. But only two decades later, in 2009, Blockchain had its first real-world use. That was the time of the launch of Bitcoin.
Blockchains have been exposed as a disruptive power to the finance sector. Banks and decentralized blockchains are immensely different.
Today, more than 15,000 cryptocurrency systems are running on blockchains. However, the Blockchain is a reliable way of storing data.
Some companies have already included Blockchain. Those companies are Walmart, Siemens, Pfizer, AIG, Unilever, and some others.
Banking and Finance
We could say that the banking industry benefits the most from integrating Blockchain into its business operations. As financial institutions only work five days a week, during certain hours. That means if you want to deposit a check by the end of working hours on Friday, you will have to wait until Monday morning to get that money in your account. Even if you deposit during business hours, it might still take one to three days to verify the number of transactions banks need to resolve. In terms of the Blockchain, these problems do not exist as it never stops working. By adding Blockchain to banks, customers can view their transactions processed in less than 10 minutes regardless of holidays or the time of day.