What is blockchain and how does it work?

Blockchain technology is a network of peer-to-peer nodes that keeps transactional records, also known as blocks, of the public in various databases, also known as the “chain.” This type of storage is sometimes referred to as a “digital ledger”. Every transaction in this ledger is signed with the owner’s digital signature, which verifies the transaction and protects it from manipulation. As a result, the data in the digital ledger is extremely safe. To put it another way, the digital ledger is similar to a Google spreadsheet that is shared across several computers in a network and stores transactional information based on actual purchases. The intriguing aspect is that everyone can view the data, but they cannot alter it.

Blockchain - the technology that is changing the world around us. In 2020, we can easily term it as mainstream. Blockchain when released in 2009 via bitcoin only had one type of blockchain, i.e., public blockchain. Bitcoin changed the world and that’s because anyone can send assets without the need for a centralized entity.

The idea of true decentralization was born. But, only having a public blockchain was limiting. Sooner or later other types of blockchain came into place. We can broadly divide the types as follows:

  1. Public blockchain
  2. Private blockchain
  3. Hybrid blockchain
  4. Federated blockchain

The goal of blockchain is to make it possible to record and distribute digital data without being able to change it.

A blockchain serves as the base for immutable ledgers or transaction records that cannot be modified, erased, or destroyed in this way. Distributed ledger technology is another name for blockchains (DLT).

Before its first mainstream use, Bitcoin, in 2009, the blockchain concept was first introduced as a research project in 1991.

In the years after that, blockchains have increased due to the introduction of multiple cryptocurrencies, decentralized finance (Defi) apps, non-fungible tokens (NFTs), and smart contracts.

Following are steps in which blockchain works:

  • A new transaction is entered/posted into the system.
  • A network of peer-to-peer nodes or computers confirms the validity or legitimacy of the transaction using two types of keys.
  • Once confirmed, a new block or ledger is created for that transaction.
  • The new block is then chained to an older block done for the same person or ledger, thus creating a chain of blocks.
  • The transaction is over.