In almost every industry you can think of, blockchain is poised to cut out middlemen, dramatically improve transparency, and multiply the efficiency of countless transactions worldwide.
While most well-known for its application in cryptocurrencies, blockchain is on the cusp of fundamentally revolutionizing supply chains, healthcare, elections, and real estate.
But What Is Blockchain, and How Does it Work?
Blockchains emerged in 1991 as a way to timestamp digital documents, but became much more widely-known in 2009 when “Satoshi Nakamoto,” whose true identity is disputed, used blockchain to create the cryptocurrency Bitcoin.
A blockchain is a decentralized database shared across a network of computers, or “nodes,” that can only be altered after approval from all nodes in the system. Once information is created in a blockchain, it is very difficult to change.
Each block within a blockchain contains (1) data, (2) the hash, or a digital fingerprint of the block, and (3) the hash of the previous block. Different types of data can be stored within blocks, such as the sender, receiver, and transaction amount in the case of Bitcoin. A block’s hash, which is generated based on the data within that block, changes if its data is altered.
Blockchains are extremely secure for several reasons:
- Because each block contains its own hash and the hash of the previous block, changing one hash will make the rest of the blockchain invalid.
- Proof-of-work is a mechanism that slows the creation of new blocks, requiring about 10 minutes per block in the case of Bitcoin. This delay makes it extremely difficult to recreate an entire blockchain after changing the data of one block.
- Consensus models vet computers seeking to join the blockchain with proof-of-work and proof-of-stake tests. Proof-of-work tests require nodes to solve computational challenges in exchange for tokens, which can then be used in proof-of-stake tests to purchase entry into a blockchain.