What is a Blockchain?

The Basics of Blockchain

Blockchain technology is rapidly changing how records are kept and how business has done, but what is it? Before we explore blockchain tech, let’s break down the term.

Block.

Chain.

Blockchain.

A block is simply a data structure where information is permanently recorded. A “real world way” to conceptualize a block is to think of a filing cabinet that contains a variety of records, but the cabinet is condensed into a single digital point. The filing cabinet is the block and the folders within the cabinet are the data stored in the block. However, you can only fit so many folders into a single filing cabinet and once the cabinet is full you will need a new one to store additional records. Similarly, a block can only contain so much data, so once a block is full, a new block is created to store new data.

How are these blocks connected? They’re “chained” together. A chain of blocks. A blockchain.

In its simplest form, a blockchain is a digital ledger of transactions/records. Multiple blocks of data chained together, resulting in a record of transactions that have occurred on the blockchain.

This system has been used for years to secure financial transactions, but its potential goes far beyond that. Blockchain technology could be used to create tamper-proof records for everything from voting to land registration.

How Does Blockchain Work?

As we mentioned before, blockchain is a digital ledger of transactions. When you make a transaction, that transaction is broadcast to the decentralized network of computers (also known as “nodes”) and verified by those computers. Once it is verified, the transaction is added to a “block” that, once full, is then chained to the previous block, creating a “blockchain.”

The key advantage of this system is that it is very difficult to tamper with a transaction once it has been added to the blockchain. This is because each block in the chain contains a cryptographic hash of the previous block (a WHAT?), so if you try to change a transaction in an earlier block, that will cause the hash of that block to change—and that will be detectable by the nodes in the network, signaling the attempted change to records.

But how does that work in practice? Let’s say you want to buy some crypto tokens. You send some bitcoin (or another cryptocurrency) to the seller’s wallet address, and in return, you receive your tokens.

Once you initiate the transaction, your wallet will broadcast it to the decentralized network of computers running the relevant blockchain protocol. These nodes (remember, the computers in the network) will then verify the transaction—for example, they will check that you have not already spent those bitcoins somewhere else and that you have enough bitcoin in your wallet to cover the purchase. Once your transaction has been verified by enough nodes, it will be added to a “block” along with other transactions.

• Each block contains a cryptographic hash of the previous block in the chain as well as a timestamp. This makes it very difficult for someone to go back and tamper with an earlier transaction because that would cause all subsequent blocks in the chain to become invalid.
• Blocks are “chained” together—hence the name “blockchain”—creating an immutable record of all transactions made on that blockchain.   Every node in the network has its own copy of this blockchain which is updated automatically whenever a new block is added, so everyone can see which transactions have taken place.

What Can You Do With Blockchain?

The applications of blockchain technology are practically limitless. Its most well-known use case is as the underlying technology behind cryptocurrencies like Bitcoin and Ethereum, but crypto represents just the tip of the iceberg. Here are some other potential uses for blockchain:

• Securing medical records: The U.S. Department of Health and Human Services has awarded $1 million dollars to startup ShroudX for developing a platform that uses blockchain technology to secure medical records.
• Fighting fraud: Japanese electronics giant Fujitsu has developed a system using blockchain technology that it claims can reduce fraudulent activities such as fake reviews and bogus product listings.
• Improving supply chain management: Walmart is using blockchain technology to track meat products throughout China and plans to roll out similar programs for tracking other food items globally.

These are only a few examples of what can be done with blockchain technology and as the technology advances more use cases will be discovered and applied.

Blockchain is a versatile tool with endless potential applications. Whether you’re looking to invest in cryptocurrency or just want to understand how this innovative technology works, this piece has given you a better understanding of what blockchain is and how it works.