What Blockchain is and How It Works

Blockchain is a method of storing data in a way that makes it difficult or impossible to alter, hack, or cheat it.

A blockchain is a digital log of transactions duplicated and distributed across the blockchain’s complete network of computer systems.

Each block on the chain contains many transactions, and whenever a new transaction occurs on the blockchain, a record of that transaction is added to the ledger of each participant.

Blocks have specific storage capacities, and when they’re full, they’re closed and linked to the preceding block, producing a data chain known as the blockchain.

All additional information added after that newly added block is compiled into a new block, which is then added to the chain after filling it.

A database organises data into tables, whereas a blockchain organises data into chunks (blocks) that are strung together, as the name suggests.

This data structure creates an irreversible data chronology when implemented in a decentralised manner.

When a block is filled, it becomes permanent and part of the chronology.

Each block is added to the chain and given a specific timestamp.

Blockchains are well known for their critical function in keeping a secure and decentralised record of transactions in cryptocurrency systems like Bitcoin.

The blockchain’s novelty is that it ensures the accuracy and security of a data record while also generating trust without the requirement for a trusted third party.

Blockchain Uses Distributed Ledger Technology

Distributed Ledger Technology is a decentralised database that is administered by various people (DLT).

Blockchain is a distributed ledger technology in which transactions are recorded using a hash, an immutable cryptographic signature created by a mathematical function that turns digital information into a string of numbers and letters.

This means that if a single block in a chain is modified, it will be immediately clear that it has been tampered with.

If hackers intended to destroy a blockchain system, they would have to change every block in the chain across all distributed versions of the chain.

Blockchains like Bitcoin and Ethereum are constantly growing as new blocks are added to the chain, increasing the ledger’s security dramatically.

Blockchains are well known for their critical function in keeping a secure and decentralised record of transactions in cryptocurrency systems.

The blockchain’s novelty is that it ensures the accuracy and security of a data record while also generating trust without the requirement for a trusted third party.

Read: All You Need To Know About Cryptocurrency

The Five Key Concepts Behind Blockchain

• Shared ledger. A shared ledger is a distributed system of records that is shared across a business network and is “append-only.” Transactions are only recorded once in a shared ledger, reducing the duplication of effort that is common in traditional corporate networks.
  
  
• Permissions. Transactions are secure, authenticated, and verifiable thanks to permissions. Organizations can more readily comply with data protection standards, such as those stated in the Health Insurance Portability and Accountability Act (HIPAA) and the EU General Data Protection Regulation (GDPR), with the option to prohibit network membership.
  
  
• Smart contracts. A smart contract is a contract or set of rules that govern a business transaction that is kept on the blockchain and executed automatically as part of the transaction. A smart contract can specify parameters for corporate bond transfers, payment of travel insurance, and much more.
  
  
• Consensus. All parties agree to the network-verified transaction through consensus. Proof of stake, multi-signature, and pBFT (practical Byzantine Fault Tolerance) are some of the consensus processes used in blockchains.
  
  
• Immutable records. After a transaction has been logged into the shared ledger, no participant can edit or tamper with it. If a mistake is found in a transaction record, a new transaction must be made to correct the issue, and both transactions must then be visible.

Read: How Blockchain Enhances Data Security and Transparency

How Blockchain Works (Bitcoin Use Case)

When a new transaction is entered, it is transmitted to a network of worldwide peer-to-peer computers.

This network of computers then solves equations to confirm the transaction’s validity.

Once confirmed to be legitimate transactions, they are clustered together into blocks.

These blocks are then chained together, creating a long history of all permanent transactions.

And like that, the transaction is complete.

Because the blockchain is decentralised, the database data can be shared among multiple network nodes.

This adds redundancy to the database and ensures that the data contained within is accurate.

If one database node is updated, the other nodes are unaffected, preventing a bad actor from doing so.

If one user tampers with Bitcoin’s transaction record, all other nodes will cross-reference each other, making it easy to find the node with the erroneous data.

This system helps establish a precise and visible sequence of occurrences.

This way, no single node in the network may change the data it contains.

As a result, the information and history of a cryptocurrency, such as transaction history, is irreversible.

A blockchain might store a list of transactions, similar to a cryptocurrency.

Still, it could also store other data, such as legal contracts, state identifications, or a company’s stock inventory.

Transparency

In addition, the blockchain is transparent.

Anyone can observe all transactions transparently using a personal node or blockchain explorers, which allow anyone to see real-time transactions.

Each node has its own copy of the chain, updated as new blocks are added and confirmed.

This means you could follow Bitcoin wherever it goes if you wanted to.

Exchanges, for example, have been hacked, resulting in the loss of every Bitcoin held on the exchange.

While the hacker may remain unidentified, the Bitcoins they stole are clearly traceable.

It would be known if the Bitcoins stolen in some of these attacks were relocated or spent somewhere.

Of course, the records in the Bitcoin blockchain (and most others) are encrypted.

This means that only the record’s owner can decrypt it and expose its identity (using a public–private key pair).

As a result, blockchain users can maintain their anonymity while maintaining transparency.

Read: Blockchain Business Trends Transforming Industries in 2024 & 2025

Is Blockchain Secure?

Assume a hacker who manages a blockchain node wants to change a blockchain and steal cryptocurrency from everyone else.

If they changed their single copy, it would no longer match the copy of everyone else.

When everyone else compares their copies, they’ll notice that this one stands out and that the hacker’s version of the chain will be discarded as invalid.

To succeed with such a compromise, the hacker would have to control and alter 51% or more of the blockchain copies simultaneously, ensuring that their new copy becomes the majority copy and, thus, the agreed-upon chain.

An assault like this would cost a lot of money and resources because they’d have to rewrite all of the blocks because the timestamps and hash codes would be different today.

The expense of pulling off such a feat would almost certainly be impossible, given the scale of many cryptocurrency networks and how quickly they are developing.

Not only would this be prohibitively expensive, but it would also be futile.

Such actions would not go unnoticed by network participants, who would detect such significant changes to the blockchain.

Members of the network would then hard fork to a new version of the chain that was not harmed.

Read: Blockchain’s Impact on Identity Verification and Authentication

Conclusion

In summary, blockchain technology offers a robust solution for secure, transparent, and decentralized record-keeping.

Creating an immutable chain of blocks ensures that once data is recorded, it cannot be altered without detection.

This decentralized structure, reinforced by consensus mechanisms and cryptographic hashing, significantly enhances security and trust in digital transactions.

Whether used for cryptocurrency or other applications like legal contracts and inventory management, blockchain provides a reliable way to maintain data integrity across multiple participants.

As blockchain technology evolves, its applications and impact on various industries are likely to expand.

This further solidifies its role as a transformative force in digital record-keeping.

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