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What is a blockchain?

At its simplest form, a blockchain is a digital collection of information about transactions. This is also called a ledger, which is why this word is often used when describing blockchain technology.

A simple explanation of blockchain

When you have many different collections of data, they’re stored together using a system based on blocks of data chained together. Because each block is chained to those around it, they interact with each other.

This creates a system where if a block is altered, an adjacent block will immediately catch the error and prevent the invalid transaction. As a result, transactions on the blockchain cannot be changed — creating a permanent record that’s shared with everyone on the network.

The blockchain has the potential to unlock how we view and spend money, and how we’ll legitimize a variety of agreements, contracts, and technologies.

How the Blockchain is Decentralized

Since everyone has access to the same ledger and no one person or institution controls it, the blockchain is decentralized. This makes the blockchain different from financial institutions like banks  because banks have control over transactions.

Here’s an example: Let’s imagine the blockchain is like Google Docs and traditional banks are like older versions of Microsoft Word. With Google Docs, everyone who has access to the document can add to it. With Microsoft Word, on the other hand, all you can do is send a saved file for someone else to read.

On the blockchain, anyone on the network can add to the ledger while a bank merely sends out a statement. You can’t add a transaction to the bank’s ledger or perform transactions without its approval because it’s centralized.

How the blockchain is immutable

The immutable, or unchangeable, nature of the blockchain is where the Google Docs comparisons stop. Unlike Google Docs, no one can change what’s been entered into the blockchain. Each peer on the network can only add transactions. In other words, nothing that’s already been added can be altered in any way.

How the blockchain works

There are several different kinds of blockchains, like public blockchains and consortium blockchains, but they all share some key core elements. A blockchain is made up of blocks. Within these blocks is data. The data contains information that needs to be kept on the blockchain’s ledger.

For example, with cryptocurrency, the data includes:

  • Sender
  • Receiver
  • How much currency is being sent

Blockchains are also used in the process of tracking food. In this case, the block would contain data such as:

  • Where the food was harvested
  • The factory that processed it
  • Where the food was purchased

Thanks to the blockchain, if there’s a food-born disease, you can quickly figure out where the food was produced and which facilities (or even people) handled it. You can then use that information to protect others from getting infected — all within a matter of minutes or hours.

If the automobile industry were to use the blockchain, you could ensure that the odometer readings of vehicles were accurate, preventing people from tampering with them to increase or decrease value.

For example, the block could contain an accurate odometer reading and the date it was recorded. This would be stored on the blockchain, and anyone could access it to see a true record of how far the car had been driven.

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Source: Codecademy.com