How Does Blockchain Work
So Blockchain is changing how we do business and will probably also affect our lives. But what is Blockchain and why is it so important?
Simply put, the Blockchain is a shared single version of the truth of anything digital. It is a database technology, a distributed ledger that maintains an ever growing list of data records, which are decentralised and impossible to tamper with. The data records, which can be a
Bitcoin transaction or a smart contract or anything else for that matter, are combined in so-called blocks. In order to add these blocks to the distributed ledger, the data needs to be validated by 51% of all the computers within the network that have access to the Blockchain.
The validation is done via cryptography, which means that a mathematical equation has to be solved. Solving the mathematical equation is difficult and requires a lot of computing power. However, once it is solved it is immediately clear that the answer is correct. This can be compared to a crossword puzzle, which can be very difficult to solve, but once completed you immediately know that it is done correctly.
Once the validation is done, the Block will receive a timestamp, a so-called hash. This hash is then used to create the next block in the chain. If even one bit in the block changes, the hash will change completely and as a result, all subsequent blocks in the chain will change. Such a change has to be validated again by 51% of all the nodes in the network, which will not happen because they don’t have an incentive to work on ‘old’ blocks in the chain. Not only that, the blockchain keeps on growing, so you would require a tremendous amount of computing power to achieve that, which is extremely expensive. So it is simply not worth it to change any data. As a result, it is nearly impossible to change data that has been recorded on the Blockchain.
The result is that peer-to-peer transactions become possible, without the need for a centralised certifying authority, such as a bank, which usually takes a small commission to carry out the work. If third parties are no longer necessary and organisations or consumers can do transactions peer-to-peer, which are also processed nearly instantly, that is a paradigm shift and that’s why the Blockchain is so important.
Of course, there is a lot more to the Blockchain than the brief description I have provided here. There are public and private Blockchains or Permissioned or Permissionless Blockchains. There are a wide variety of applications possible on the Blockchain, ranging from shopping, voting or renting out your house/boat/car/office to reputation systems. There are many different Blockchains (Bitcoin Blockchain, Ehtereum, Hyperledger, etc.) or cryptocurrencies (Bitcoin, Ether, Steem Dollars, etc.) and marketplaces to trade these cryptocurrencies.
Read more at: https://opendatascience.com/blog/what-is-the-blockchain-and-why-is-it-so-important/