Blockchain Explained: What is Blockchain?
What is a blockchain?
A blockchain is a distributed ledger that is continually updated and managed by a network of people. The network digitally records all the information that is added to the blockchain. Blockchains can be either private, only accessible to a closed network, or public and accessible to anyone on the internet.
How does the blockchain work?
Adding new information on the blockchain follows a linear process.
For example, you want to send your friend bitcoin. You make a transaction to send your friend 0.003 BTC. Your request goes to the bitcoin blockchain. Then, miners confirm whether your transaction request is consistent with the previous records on the blockchain.
Through a series of computations, computers around the world are able to validate your transaction. In return, the people operating these computers receive rewards for their work.
Your new transaction creates a “block” on the blockchain that connects to the last block. Each block on the blockchain is linked chronologically to the previous block showing every transaction ever made on the network.
This way, anybody who has access to the blockchain can identify what transactions have been made and when they were made.
Related: How does a bitcoin transaction work?
How is the blockchain different from a traditional database?
Traditional databases are managed by centralized systems such as banks and the government. On the other hand, a blockchain does not rely on a centralized system. It’s a distributed database that is replicated among members in its network who check and record new data, rather than having a single administrator handling it.
Through the blockchain system, there is greater difficulty to tamper or lose records because there is no one “master record.” Should a person want to make changes to the database, each database distributed among the participants in the network must be changed, which could be as many as millions of people.
The blockchain allows people to put their trust in a system founded on democracy and computer code, allowing for rapid improvement in processing transactions, record acquisitions, and even health care. This idea changes the traditional way of storing and protecting information.
Disclaimer: Buying bitcoin and other virtual currencies carries a high level of risk, and may not be suitable for everyone. Read the full BSP advisory to understand the risks of buying, holding, or trading cryptocurrencies.
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