What Is Blockchain Technology?

Blockchain is an immutable (unchangeable) and shared digital ledger that stores records or transactions in several places on a network of computers. Here, each verified transaction is added in a space called a block that links with other subsequent blocks with the help of cryptography, forming a chain.

If that definition made you scratch your head, let’s understand blockchain technology in simpler terms.

Blockchain is a kind of database that stores data (records) on a computer electronically.

Block = A space that contains records

Chain = A link connecting records

So, a chain of linked blocks containing records is called a blockchain.

All blockchains are databases, but not all databases are blockchains. The difference between a database and blockchain is how they store data.

Blockchain vs. Database

A database collects a vast amount of information and arranges it in a tabular format to allow users to modify data easily and simultaneously. Also, more extensive databases use servers with powerful computers to house massive data and perform computation. A company or an individual generally owns a database; hence, they control and manage its access.

On the other hand, blockchain collects data in groups or blocks with a specific storage capacity. When a block’s capacity is filled, it attaches to another block, forming a chain. All the new records following the subsequent, newly added block are compiled into the new block.

Unlike a traditional database, a blockchain does not have a single owner; instead, it’s accessible to everyone with permission. This is why it’s also called a decentralized system, as there’s no central hub to control the blockchain. Similarly, blockchain technology is called Distributed Ledger Technology (DLT). It is a distributed ledger of records and allows users to share data or perform transactions peer-to-peer with no central authority.

Blockchain technology was invented by an unknown entity – Satoshi Nakamoto (an individual or a group of individuals in 2008) as a public bitcoin transaction ledger. It aims to timestamp a digital document and ensure no one can tamper with it. It helps to solve the issues related to double records and perform secure transactions of assets without involving a third-party intermediary such as the government or bank.

This technology works on the internet and comprises different parts like databases, connected computers or nodes, software applications, and more.

Example: A company can leverage blockchain technology in its bookkeeping to record all transactions. Bookkeeping involves double-entry accounting for transactions that can be confusing and difficult to verify records by other parties. These records are also straightforward to tamper with, like edit, delete, or add a new record; hence, they may not be accurate.

This is where blockchain can help them by securing transactions with the help of cryptography. It offers a tamper-proof way of storing transactions in blocks.