A blockchain is a distributed database shared among a computer network’s nodes. They are best known for their crucial role in cryptocurrency systems for maintaining a secure and decentralized record of transactions, but they are not limited to cryptocurrency uses. Blockchains can be used to make data in any industry immutable the term used to describe the inability to be altered.
Because there is no way to change a block, the only trust needed is at the point where a user or program enters data. This aspect reduces the need for trusted third parties, which are usually auditors or other humans that add costs and make mistakes.
Each blockchain network has various participants who play these roles, among others:
- Blockchain users – Participants (typically business users) with permissions to join the blockchain network and conduct transactions with other network participants.
- Regulators – Blockchain users with special permissions to oversee the transactions happening within the network.
- Blockchain network operators – Individuals who have special permissions and authority to define, create, manage, and monitor the blockchain network.
- Certificate authorities – Individuals who issue and manage the different types of certificates required to run a permissioned blockchain.
How does it work?
Let us start with the blocks. Each block contains stored data, as well as its own unique alphanumeric code, called a hash. These cryptographically generated codes can be thought of as a digital fingerprint. They play a role in linking blocks together, as new blocks are generated from the previous block’s hash code, thus creating a chronological sequence, as well as tamper proofing. Any manipulation to these codes’ outputs an entirely different string of gibberish, making it easy for participants to spot and reject misfit blocks.
Another key feature to the inner workings of blockchain is decentralization. In lieu of a centralized entity, blockchains distribute control across a peer-to-peer network made up of interconnected computers, or notes. These nodes are in constant communication with one another, keeping the digital ledger up to date. So, when a transaction is taking place among two peers, all nodes take part in validating the transaction using consensus mechanisms. These built-in protocols keep all in-network nodes in agreement on a single data set. No blocks can be added to the blockchain until it is verified and has reached consensus. Luckily, this step has been sped up with the advent of smart contracts, which are self-executing programs coded into a blockchain that automate the verification process.
Once a transaction is recorded, it is considered permanent. Blockchains are one-way operations in that there are no reversible actions. This immutability is part of creating transparency across the network and a trustworthy record of all activities on the blockchain.
