Blockchain is a computer file used for storing data – information. Like any computer file (including the document you are reading now) it exists on a digital storage medium, such as a computer hard drive. And it takes the form of a string of binary “bits”, ones and zeros, which can be processed by computers to be made readable by humans.
Blockchains, however, have three properties which, while not unique individually, when put together mean they function very differently than other types of computer files.
The first is that they are distributed. The file containing this article can, in theory, simply be stored on one computer and accessed over the internet by however many people want to use (i.e read) it. A blockchain, on the other hand, is duplicated, in its entirety, across many computers.
This means that no one person, or entity (such as a corporation, or government) has control over the content of the file. While whoever is in control of the computer storing the file which you are reading now can edit it, to make whatever changes they like, that isn’t the case with a blockchain. Editing the blockchain is only possible if there is a consensus between the network of computers storing separate, but identical, versions of the blockchain. And this is made possible thanks to the second fundamental innovation of blockchain – cryptography.
How it works?
A trade is recorded. For example, let’s say Mr A is selling two of his coins to Mr B for Rs 100. The record lists the details, including a digital signature from each party.
The record is checked by the network. The computers in the network, called ‘nodes’, check the details of the trade to make sure it is valid.
The records that the network accepted are added to a block. Each block contains a unique code called a hash. It also contains the hash of the previous block in the chain
The block is added to the blockchain. The hash codes connect the blocks together in a specific order. Hash codes keep records safe
A hash code is created by a math function that takes digital information and generates a string of letters and numbers from it. Let’s take a closer look at two important characteristics of hash codes:
First, no matter what the size of the original file, a hash function will always generate a code of the same length.
Unlike traditional ledgers, a blockchain database is decentralized and has no “master.
There is a lot of hype about blockchain, but some promising uses are under development.
Blockchains are the basis of bitcoin and other cryptocurrencies.
Financial institutions have been investing in blockchains to simplify their record-keeping for payments.
Recording trades on a blockchain offers a way to check the history of a product. For example, jewelry companies hope it can assure customers that diamonds are not from places where they could finance war.