At its most basic level, blockchain(also called Distributed Ledger Technology) is literally just a chain of blocks, but not in the traditional sense of those words. When we say the words “block” and “chain” in this context, we are actually talking about digital information (the “block”) stored in a public database (the “chain”).
“Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts:
- Blocks store information about transactions like the date, time, and dollar amount of your most recent purchase from Amazon. (NOTE: This Amazon example is for illustrative purchases; Amazon retail does not work on a blockchain principle as of this writing)
- Blocks store information about who is participating in transactions. A block for your splurge purchase from Amazon would record your name along with Amazon.com, Inc. (AMZN). Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.
- Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Hashes are cryptographic codes created by special algorithms. Let’s say you made your splurge purchase on Amazon, but while it’s in transit, you decide you just can’t resist and need a second one. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes.
- While the block in the example above is being used to store a single purchase from Amazon, the reality is a little different. A single block on the Bitcoin blockchain can actually store up to 1 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.
There are nodes throughout the world it is virtually impossible for the entire network to be taken over by a single party. It is almost impossible to fake a block. The reason is that the validity of the block and, by extension, its inclusion into the Blockchain is determined by an electronic consensus of nodes. There are thousands of these nodes, scattered all over the world, and as a consequence capturing the network would require a computer with impossible power.
- The Blockchain is a database, which is distributed among all nodes.
- No one or several nodes control the Blockchain.
- All nodes are able to validate a transaction.
- All communication on the Blockchain is p2p.
- Anyone using a Blockchain is anonymous if that is what they wish.
- All transactions occurring on a Blockchain are recorded there, so the transactions of any person using the network are public and completely transparent, even though they may be anonymous.
- Once a transaction is recorded on the Blockchain and the Blockchain has updated, then that transaction cannot be altered.
- No one person or organization can turn off a Blockchain.
- Although a Blockchain is politically and architecturally decentralized it is logically centralized.