What is blockchain? How it works

Blockchain is a special database with the task of recording transaction data in a secure and decentralized way. Thanks to its security characteristics, not only in the cryptocurrency field, blockchain is also used in many fields to prevent data from being altered or fraudulent.

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What is blockchain?

Blockchain is a special database, born in the 1990s from computer scientist Stuart Haber and physicist W. Scott Stornetta. Accordingly, blockchain was born as a measure to protect digital data from being tampered with. This is also the foundation for forming the first electronic currency, Bitcoin.

To describe it simply, you can understand blockchain as a specialized accounting book used to record and transmit transaction data. The special point here is the ability to ensure data integrity thanks to blockchain’s encryption and consensus mechanism, thereby making all recorded information unable to be recorded.

Besides, blockchain also possesses extremely strong security because it is operated by all computers distributed around the world. For this reason, not only in the cryptocurrency field, blockchain is also used in many fields to prevent data from being altered or fraudulent.

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How does blockchain work?

As mentioned, blockchain acts as an accounting book that records transactions between parties with powerful anti-tampering capabilities. So where does this data go? They will be recorded by a special globally distributed network of computers called nodes.

Accordingly, these nodes will authenticate transactions by verifying digital signatures and other transaction data whenever a user requests a transaction. Once the transaction has been verified, a new block will be added and this block will be cryptographically linked to the previous block, forming the blockchain.

The special point here is that each block in the blockchain contains the hash chain of the previous block, meaning that to change the data of one block, changes must be made to the next blocks as well.

How many types of blockchains are there?

As of now, these are the main types of blockchains in use:

• Public Blockchain: Allows anyone to participate in verifying transactions and adding data to the blockchain.
• Private Blockchain: A blockchain network used by a specific organization or business. Only those authorized to participate can verify transactions and access data.
• Permissioned Blockchain: Blockchain networks combine public and private, only a few users are allowed to participate and need to pass the evaluation process before participating in the network.

What benefits does blockchain bring?

The advent and use of blockchain technology bring many benefits, notable ones include:

• Secure: Blockchain’s decentralized nature makes it without a single point of control or failure, ensuring it is more secure against attacks or data breaches.
• Transparency: Transactions on the blockchain can be tracked and verified by participating parties without having to go through any other intermediaries.
• Immutable: Transactions on the blockchain, once recorded, cannot be changed or deleted.
• Efficiency: Transactions on blockchain take place faster and more efficiently without the need for any other intermediaries.
• Lower fees: Blockchain transactions have lower costs thanks to the lack of intermediaries and the automation of the entire process.

How is blockchain used?

With the above benefits, blockchain has been used for many tasks such as:

• Cryptocurrencies: Blockchain is the foundation for cryptocurrencies thanks to their ability to trade safely, without intermediaries, and transparently.
• Digital identity: Blockchain can store identity information, helping prevent fraud and creating a secure identity system.
• Voting: Several projects have deployed blockchain to improve the voting process, helping ensure transparency and prevent fraud in elections.
• Supply chain management: Blockchain allows tracking and verifying the origin of products in the supply chain, helping to increase transparency and ensure quality.
• Smart contracts: Blockchain supports the implementation of smart contracts, which are contracts that operate on their own when certain conditions are met.

Conclusion

We have finally finished learning the most general and easy-to-understand content about blockchain. Hope you enjoy this content. If you are interested in cryptocurrency, please take a look at the best crypto exchanges here.