What is Blockchain?

Aug 15, 2023 | Explainers

« Explainers | What is Blockchain?

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Blockchain is a distributed ledger technology (DLT) that allows data to be stored across a network of computers in a way that is transparent, secure, auditable, and resistant to outages. It can be used to securely record transactions, manage assets, and even execute smart contracts. Here are some key points about blockchain:

  1. Blocks and Chains: At its core, a blockchain is composed of a chain of blocks. Each block contains a number of transactions, a timestamp, and a reference to the previous block (via a cryptographic hash). This creates an irreversible chain of blocks, hence the name.
  2. Distributed and Decentralized: Instead of being stored on a single central server, the blockchain ledger is stored on many computers (nodes) all over the world. This ensures that the system remains operational even if some nodes fail.
  3. Consensus Mechanisms: Transactions are added to the blockchain through a consensus process. This process ensures that the majority of nodes in the network agree on the validity of a transaction. Popular consensus mechanisms include Proof-of-Work (PoW) and Proof-of-Stake (PoS).
  4. Immutable: Once data is added to the blockchain, it is extremely difficult to alter. This immutability comes from the cryptographic hashes and the consensus mechanisms. If someone tries to alter a block, it will change the block’s hash and break the chain, making the alteration obvious to network participants.
  5. Transparent: Every participant in the network can see all the transactions on the blockchain, although they might not always see the identities of the people involved. This transparency can help reduce fraud and corruption.
  6. Security: Transactions on the blockchain are secured using cryptographic techniques. This, combined with its decentralized nature and consensus mechanisms, makes blockchains resistant to malicious attacks.
  7. Smart Contracts: Some blockchains, like Ethereum, allow for the creation of “smart contracts.” These are self-executing contracts where the terms of agreement or conditions are written into lines of code. They automatically execute actions when certain conditions are met.
  8. Applications: While blockchain is the underlying technology for cryptocurrencies like Bitcoin and Ethereum, its potential uses extend far beyond digital currencies. It’s being explored for applications in supply chain management, voting systems, real estate, health records, and more.
  9. Challenges: Despite its potential, blockchain is not without challenges. These include scalability issues, environmental concerns (especially with PoW consensus), regulatory challenges, and the need for broader understanding and adoption.
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Blockchain offers a new paradigm for secure and transparent data management, and while it’s often associated with cryptocurrencies, its potential applications are vast and varied.

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