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A blockchain is a distributed database or ledger shared among the nodes of a computer network. They are best known for their crucial role in cryptocurrency systems in maintaining a secure and decentralized record of transactions, but they are not limited to using cryptocurrencies. Blockchains can remain used to make data immutable in any industry – the term describes immutability.

Because there is no way to change a block, the only trust required is where a user or program enters data. It reduces the need for trusted third parties, often auditors or others who incur additional costs and make mistakes.

Since the introduction of Bitcoin in 2009, the use of the blockchain has exploded with the creation of various cryptocurrencies, decentralized finance applications (DeFi), non-fungible tokens (NFTs), and smart contracts.

How does a Blockchain Work?

You may be familiar with spreadsheets or databases. A blockchain is somewhat similar because it is a database where information is entered and stored. However, the main difference between a traditional database or spreadsheet and a blockchain is how the data is structured and retrieved.

A blockchain comprises programs called scripts that perform the tasks you would normally perform in a database: entering and accessing information and saving and storing it somewhere. A chain of blocks is distributed, meaning that multiple copies are stored on many machines, and all must match to be valid.

The blockchain collects transaction information and enters it into a block, similar to a spreadsheet cell containing information. Once full, the information goes through an encryption algorithm that creates a hexadecimal number called a hash.

The hash is then entered into the next block header and encrypted with the remaining block information. It creates a series of blocks that are chained together.

Blockchain Transparency

Due to the decentralized nature of the Bitcoin blockchain, all transactions can be viewed transparently either by having a personal node or by using blockchain explorers that allow anyone to watch live the transactions taking place. Each node has its copy of the chain updated as new blocks are committed and added. It means that if you wanted to, you could track a bitcoin wherever it went.

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