What Is a Blockchain?

A blockchain represents a distributed database or ledger that is shared among the nodes within a computer network. Its most prominent application is in the realm of cryptocurrency, where it plays a critical role in maintaining a secure and decentralized record of transactions. However, its utility extends far beyond the realm of digital currency. Blockchains have the capability to render data immutable, meaning it cannot be altered, across a wide range of industries.

The primary assurance required within a blockchain system is at the point where a user or program inputs data. This inherent feature reduces the reliance on trusted third parties, typically individuals like auditors, who can introduce costs and errors into the process.

Since the advent of Bitcoin in 2009, the utility of blockchain technology has witnessed a rapid expansion. It has found application in various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts, marking a significant evolution in its use cases.

How Does a Blockchain Work?

You may have some familiarity with spreadsheets or traditional databases. In essence, a blockchain shares a similarity with these systems, as it serves as a database for the entry and storage of information. However, the key distinction between a conventional database or spreadsheet and a blockchain lies in how data is structured and accessed.

A blockchain comprises of programs known as scripts, performing tasks akin to those in a typical database: inputting and retrieving information, as well as saving and storing it. The unique attribute of a blockchain is its distribution, where multiple copies are stored on numerous machines, and they must all match to validate the data.

Within the blockchain, transaction details are collected and recorded within a block, analogous to a cell in a spreadsheet that holds information. When a block reaches capacity, the data undergoes encryption through an algorithm, resulting in the creation of a hexadecimal number known as the “hash.”

This hash is subsequently integrated into the header of the next block, combining with other information within the block and forming a connected series of blocks, thereby creating a blockchain.