What is blockchain?

 

Blockchain technology entered our lives with cryptocurrencies. The world's first blockchain, Bitcoin, was designed by Bitcoin's pseudonymous creator, Satoshi Nakamoto , to avoid the problem of double spending. Subsequently, many altcoins adopted Bitcoin's code and blockchain concept to produce their own cryptocurrencies and blockchain-based products.

A blockchain is essentially a data storage system where multiple people can upload and process data collectively. Cryptocurrencies like Bitcoin use the blockchain to store transaction information and ensure that no one can tamper with Bitcoin and/or spend bitcoin they don't have. While data security is traditionally a centralized process, with only a few people in control of large sets of data, blockchains reverse this trend by delegating responsibility for data protection to the public.

In this article, we will review what blockchains are and explore how they work, especially in relation to cryptocurrencies like Bitcoin. We will also look at the different types of blockchains and some use cases to see where blockchain technology is today.

What is a blockchain for?

It may be easier to explain what blockchains are if we start by explaining what they are used for. A blockchain is essentially a special database for recording, distributing and protecting information through the collaboration of multiple actors. While a single authority typically manages most databases, a blockchain depends on multiple actors to function.

For example, a social networking site like Facebook uses its own network to obtain and store data and we connect to that network through the World Wide Web . However, when Facebook's servers go down, that data is inaccessible to us because everything depends on those servers. In such a scenario, those responsible have to fix the associated problems so that the network is available to the public again.

Blockchains present a unique solution to this problem by using cryptography and consensus algorithms. Blockchains are typically not stored on individual servers, but rather reside on networks made up of many nodes (computers). This means that blockchain servers are decentralized in a different way than regular servers. When a blockchain node goes down, other nodes in the network continue to provide access to the data set, keeping it secure and immutable.

Blockchains allow you to create data sets in which multiple people can make changes without a single authority overseeing the process. The system relies on code and cryptography to ensure that blockchain development services data remains valid.

Example: How the Bitcoin blockchain works

We can look at a Bitcoin blockchain to understand how these protocols work. The Bitcoin blockchain is a database for Bitcoin transaction information. It can be thought of simply as a public, distributed ledger.

When someone makes a Bitcoin transaction, they interact with the blockchain and request that a line be added to the ledger representing their transaction. Bitcoin verifier nodes, or “miners,” use the consensus mechanism to ensure that transaction information is valid and add it to the Bitcoin ledger.

The ledger is broadcast to all other nodes on the network, which can check and verify the information themselves. Technically, anyone can become a Bitcoin “mining node,” making the cryptocurrency a decentralized system that is not controlled by any authority. Even if one node is compromised, the ledger remains secure because all other nodes in the network continue to verify and disseminate the information.

Why are blockchains secure?

As we mentioned above, different blockchains use different measures to ensure the security and accessibility of information on the blockchain. Most cryptocurrency blockchains are public, meaning they rely on large decentralized networks and cryptography to ensure the security of assets on the blockchain. There are also private blockchains that rely on a few selected miners to ensure the validity of the information stored on that blockchain.

We'll talk more about the differences between public and private blockchains in the next section, but it's important to understand that the security of both types depends on cryptography.

We talked about how blockchains are essentially databases for different types of information. Digital currencies like Bitcoin use the blockchain to keep track of transaction information, but there are different use cases for blockchains in many other industries.

A constant of blockchains is the structure of the database: as the name suggests, blockchain databases are made up of blocks of data chained together in a linear way. This means that the information in a block is logically and cryptographically consistent with the previous block in the blockchain. If someone tries to change the content of a block in the blockchain, he will not be able to do so unless he also changes all previous blocks, because each block contains the digital signature of the previous block.

Therefore, changing the content of a single block on the blockchain requires changing the entire chain. Only an entity with 51% of the blockchain network power can make such a change. Public blockchains are decentralized by nature and are mostly protected from a 51% attack, although some smaller networks may be vulnerable to these attacks if the network is not decentralized enough.

What are the different types of blockchains?

There are four main types of blockchains. While Bitcoin and most other digital cryptocurrencies use public blockchains, there are also private, permissioned, and consortium blockchains that are used for different purposes.