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What is Blockchain and How It Works

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With the use of cryptocurrency like BitcoinSV on the rise, much has been asked about how it works. One cannot discuss how Bitcoin operates without delving into the topic of blockchain. What is blockchain? The term itself sounds simple, but it takes quite a bit of studying for non-cryptocurrency users to understand. 

This article aims to make beginners understand the concept of blockchain and why it is usually the answer when the technology behind Bitcoin is questioned.

So, what is blockchain, exactly?

A blockchain is fundamentally a globally distributed ledger that lets users record valid Bitcoin transactions on data blocks that are linked together, creating a chain. The data blocks do not need centralized third-party entities, like banks, to validate them.

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Blockchain technology allows for each transaction recorded to be seen by other users within the network. This is what is unique about the Bitcoin blockchain—it is a public database. Everyone on the network can view and audit the transactions on the blockchain. Of course, not all details of a transaction can be accessed by just anyone. Personal information is still made private.

How does blockchain work?

A blockchain is essentially digital information, which comprises the “block,” saved on a network database, which is “the chain.” Each block contains details of a transaction, such as identity of owner, which is pseudonymous in the form of usernames, amount of cryptocurrency used or bought, and date and time of transaction. This transaction is then authenticated through a digital signature. 

The data blocks are duplicated and recorded on different nodes or computers, more commonly called as “miners.” These nodes check the validity of each transaction before adding them to the block. This makes blockchain a distributed ledger that contains the entire Bitcoin transaction history. All nodes on the network receive updated notifications whenever a new block is added or an existing block is altered. 

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The flow of data through the network is governed by a permanent set of rules, which makes up the original “Bitcoin Protocol.” So, if some pieces of information on a block do not adhere to the Protocol, then the block will be invalidated and rejected. Once a new block has been successfully added to the chain, the information can be viewed publicly.

One transaction does not make a single block. It can hold thousands of transactions depending on its size. The Bitcoin blockchain was designed in a way that it is capable of storing high volumes of various forms of data, such as payment transactions, to sustain business applications.

When a block is full, it is attached to the chain of other completed blocks in a chronological sequence. An inventory of the previous block’s verified transactions are also recorded on the new block. In this way, the Bitcoin database is both immutable and undeletable. 

Is blockchain fraud-proof?

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Having hundreds of thousands, if not millions, of duplicates of the blockchain, makes it extremely challenging for any one user to manipulate the data for fraudulent purposes. 

So, when asked, “what is blockchain,” one can sum it up and generally say that it is a system that allows for data to be validated and stored in a way that makes it extra resistant to hacking and tampering. 

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