What Is a Blockchain?
A blockchain is a decentralized database that is shared across the nodes of a computer network. A blockchain maintains information in an electronic format as a database. Blockchains are best recognized for their essential role in cryptocurrencies, such as Bitcoin, for ensuring the integrity and decentralization of transaction records. The unique feature of a blockchain is that it provides data verification and trust.
The way data is organized is one of the most important distinctions between a regular database and a blockchain. A blockchain groups data together in "blocks," which contain sets of information, unlike a typical database, which just stores individual records. Blocks are storage containers that, when full, are sealed and linked to the previously filled container, forming a chain of data known as the "blockchain." All new knowledge that is added after that freshly created block is completed will be included in a newly formed block that will then be added to the chain once it's been filled.
A blockchain, like its name implies, structures its data into chunks (blocks) that are linked together. Because it is based on a reliable timestamping method, the blockchain records an irreversible timeline of data in its pure form. Each block in the chain is assigned an exact time when it is added to the chain.
- Blockchain is a decentralized database that differs from a normal database in how it stores data; blockchains keep information in blocks, which are then linked together via cryptography.
- Every time new data is acquired, it is inserted into a new block. When the block is full of information, it is linked to the previous block, which keeps all of the data in chronological sequence.
- A blockchain may be used to keep track of a variety of information, but the most frequent purpose is as a transaction ledger.
- Blockchain, in the case of Bitcoin, is employed in a decentralized manner such that no single individual or entity has control—instead, everyone collectively retains it.
- Blockchains are unforgeable once the data has been entered. This implies that the data recorded is irreversible. Transactions are permanently stored and viewable on the Bitcoin blockchain, which means they're permanent.
How Does a Blockchain Work?
Blockchain technology is a method of recording and distributing digital data without the ability to alter it. A blockchain serves as the basis for unalterable ledgers, or records of transactions that cannot be modified, erased, or destroyed. This is why blockchains are sometimes called distributed ledger technologies (DLT).
The blockchain concept was first conceived as a research project in 1991, before its first widespread usage in 2009 with Bitcoin. Since then, the use of blockchains has exploded thanks to the creation of a variety of cryptocurrencies, decentralized finance applications (DeFi), non-fungible tokens (NFTs), and smart contracts.
Imagine that a firm maintains a database with all of its client account information on a server farm comprised of 10,000 computers. This company has control over every one of these computers and all of the data stored within them and also owns a warehouse structure where they are all housed under one roof. THowever, one person holding the account's private key is enough to cause considerable damage. What if the electricity goes out at that location? Perhaps its internet connection was cut off? What happens if it burns to the ground? What if a malicious individual enters a single keystroke and destroys everything? In any case, data is corruption or lost.
A blockchain is a decentralized, distributed ledger that allows data stored in a database to be dispersed across many network nodes at various locations. This not only adds redundancy, but it also maintains the accuracy of the data recorded there: if one node attempts to do so, other nodes will remain unchanged and prevent an attacker from making any changes. If a single user modifies Bitcoin's transaction record, all other nodes would compare notes and quickly identify the node with the incorrect data. This method allows for an accurate and transparent order of events to be established. As a result, no one node within the network has authority over information stored on it.
Because of this, the facts and history of transactions in a cryptocurrency are unchangeable. A blockchain could contain a variety of other information alongside transactions (such as legal contracts, state identifications, or a company's product inventory), which is something like a list.
To validate new entries or records to a block, a majority of the decentralized network's computing power would need to agree. Blockchains are secured by a consensus mechanism such as proof-of-work (PoW) or proof-of-stake (PoS), which allow for agreement even when no single node is in charge.
Because of the decentralized nature of Bitcoin's blockchain, all transactions may be viewed transparently using personal nodes or by utilizing blockchain explorers that allow anybody to watch transactions in real time. Each node has its own duplicate of the chain, which is updated every time new blocks are validated and added. This implies you may keep track of Bitcoin at any location with ease.
Exchanges have been hacked in the past, and individuals who kept Bitcoin on the exchange lost everything. While the hacker may be completely unknown, the Bitcoins they obtained are readily traceable. If Bitcoins were to be moved or spent somewhere as a result of some of these hacks, it would be discoverable.
The Bitcoin blockchain, like most others, is encrypted. This means that only the owner of a record can decrypt it to reveal their identity (using a public-private key pair). Users of blockchains may preserve anonymity while maintaining transparency thanks to this feature.
Is Blockchain Secure?
Blockchain technology offers several methods to achieve decentralized security and trust. For example, new blocks are always added linearly and chronologically to the blockchain's "tail." It's extremely difficult to rewrite the contents of a block once it has been added to the end of the blockchain, unless a consensus is reached by the network as a whole. That's because each block includes its own hash, as well as those from previous blocks, all of which are concatenated together using transaction data and timestamps. Hash codes are generated through a mathematical formula that converts digital data into a string of numbers and letters. The hash code changes if the information is modified in any way.
Let's assume a hacker wants to alter a blockchain and steal money from everyone else. If they tamper with their own single copy, it would no longer be in line with everyone else's copy. In this scenario, the hacker's version of the chain would be disregarded as illegitimate when everyone else cross-references their copies against one another.
To succeed, the hacker would need to control and modify 51% or more of the blockchain copies so that their new version becomes the majority copy and thus, the agreed-upon chain. An attack of this nature would also need an enormous amount of money and resources, as they would have to redo all of the blocks since they now have different timestamps and hash codes.
Given the enormous number of cryptocurrency networks and how swiftly they are growing, it would be prohibitively costly to pull off such a feat. This would be both expensive and ineffective. It's not difficult to imagine that if a significant number of nodes were to leave, the blockchain would be noticed. The network members will thus "fork" off to a new version of the chain that has not been changed.This would result in the attacked version of the token plummeting in value, making the attack pointless since the horrible actor now has ownership of a worthless good. It's designed this way in order to make participating in the network more financially advantageous than attacking it.