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Blockchain Explained: Definition

“Blockchain” is the technology behind the creation of Bitcoin. It is a decentralized ledger distributed across many computers. Its decentralized nature means that there is no governing or overriding third party such as a bank or government. The blockchain is also public. Anyone with Internet connection can view the entire history of Bitcoin transactions on the blockchain. Satoshi Nakamoto’s white paper described the blockchain as a permanent record of all Bitcoin transactions in a chain of blocks linked together. Each block contains transaction information, the time of the transaction, and the crypto key. Also, each block references the prior block so that the entire chain can be secured or linked together once the computer nodes verify the transactionthe mining process. This makes the blockchain a shared but trusted public ledger. Further, the fact that we do not know Satoshi Nakamoto’s true identity adds credibility to the assertion that there is no one true regulator or owner of the blockchain—it is shared by all users.

So how does the Blockchain work? It starts with a simple transaction. Assume Anna buys an office chair from Harry. Anna pays with Bitcoin. This first step sends a transaction request into the system. A block is created that contains the transaction’s details. Each block also contains the previous block’s hash and the current block’s hash. The transaction block is sent to the network nodes in the blockchain whose job is to validate the transaction using a consensus method. The consensus method used will either be proof-of-work or proof-of-stake. After the first miner shares the correct solution, at least 51% of the nodes must agree with the solution. As soon as 51% of the network nodes agree, the block is added to the blockchain.

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