In the blockchain, a block signifies that the digital information is being stored and the combination of these blocks creates a chain that is equivalent to a public database. The transaction of this database is grouped in blocks and recorded one after the other in a chain that gives it the name blockchain. The link between blocks and their content is protected by cryptography, which increases security and speeds up the exchange of information in a way that is cost-effective and more transparent.
The blockchain’s ability to record, store and move any kind of data with great ease has attracted the attention of thousands of organizations from different sectors, with the banking sector being the most active. It has also resulted in the development of several new jobs and startups ranging from mobile payment solutions to health care applications.
How Does Blockchain Work
Bitcoin was originally developed as the technology behind Bitcoin. It has now become popular for its vast globally distributed ledger running on millions of devices, which is capable of recording transactions that cannot be altered, deleted, or destroyed. Since its inception, blockchain technology is used for the creation of cryptocurrencies, decentralized finance (DeFi) applications, and Non-Fungible Tokens (NFTs).
Consider a software company that owns servers to maintain its database of all its clients’ data. All of this company’s servers are located under one roof and has full control of each of these servers and all of the data stored within them. However, this poses a single point of failure. What would happen in the likely hood of an electricity failure? What happens when the internet connection is lost? What if the warehouse burns to the ground? What if someone decides to erase everything? In any case, data is liable to be lost or corrupted.
On the other hand, blockchain technology does not allow data to be held in a single database but to be spread out among several network nodes at different locations. This helps when somebody tries to alter a record of the database at one instance but the other nodes would not be altered. The system is designed in such a way to alert other nodes if someone tries to tamper with the database’s record of transactions and each node would cross-reference each other and easily pinpoint the node with the tampered information.
As I previously discussed the blockchain’s decentralized nature, all the transactions can be viewed transparently with having a personal node because each node has its own copy of the chain that gets updated as new blocks are added.
All the records stored in the blockchains are encrypted and can be tracked wherever it goes. So if blockchain exchange gets hacked in the past, the Bitcoins that they stole can be easily traced. If the stolen Bitcoins were to be moved or spent somewhere, they can be easily traced. Moreover, blockchain users can remain incognito while maintaining transparency.
Blockchain technology achieves decentralized security by storing new nodes at the end of the blockchain chronologically. When the new blocks are added at the end of the blockchain, it becomes very difficult to go back and change any content of the block unless a majority of the network agree to reach the consensus to change. Each block contains its own hash codes, which is created by a mathematical function that turns digital pieces of information into a string of numbers and letters. If the information is altered in any way, the hash code of the block will change.