{"id":7885,"date":"2021-12-05T08:14:32","date_gmt":"2021-12-05T08:14:32","guid":{"rendered":"https:\/\/www.softwaretools.tech\/?p=7885"},"modified":"2021-12-05T08:14:35","modified_gmt":"2021-12-05T08:14:35","slug":"what-is-blockchain-and-how-does-it-work","status":"publish","type":"post","link":"https:\/\/www.softwaretools.tech\/what-is-blockchain-and-how-does-it-work\/","title":{"rendered":"What is Blockchain and How Does it Work?"},"content":{"rendered":"\n

If you have heard about bitcoins, you might have heard the term \u201cblockchain\u201d connected with them. If you are interested in investing in cryptocurrencies, you probably might know that these currencies run on a technology named \u201cblockchain\u201d.<\/p>\n\n\n\n

But, if you have never heard of the term \u201ccryptocurrency\u201d, then a brief idea about it is that it’s a type of digital or virtual asset that can be used to purchase goods or services online.<\/p>\n\n\n\n

Cryptocurrency, also known as virtual currency, functions on a network that is distributed over a wide range of computers. The network is decentralized so that it enables the currencies to be used for transactions without the involvement of banks or governments.<\/p>\n\n\n\n

Cryptocurrency has its name derived from cryptography and uses encryption techniques that are used to secure the network. <\/p>\n\n\n\n

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What is Blockchain Technology?<\/h2>\n\n\n\n

Blockchain is a decentralized distributed ledger technology (DLT) that can also be described as a specific type of database. It uses crypto hashing techniques that allow the data inside to be unalterable and transparent. <\/p>\n\n\n\n

To understand more about a block, let\u2019s learn what a database is at first. A database is the accumulation of information that is stored electronically on a computer system. <\/p>\n\n\n\n

Information (which is also referred to as data) found in databases is structured in a table format. This format helps us to search for data easily and to filter this data for a piece of specific information. <\/p>\n\n\n\n

Although it functions similarly to an excel spreadsheet, it is handled by large enterprises. Here is why it is different from an excel spreadsheet. Spreadsheets are usually used by a person or a small group of people. <\/p>\n\n\n\n

Spreadsheets can only store limited amounts of information. But, databases are usually used by enterprises to store large amounts of data.<\/p>\n\n\n\n

The data that is given as input to these databases can be filtered, accessed, and manipulated quickly by many users at once.<\/p>\n\n\n\n

The databases owned by businesses function on servers that are made of powerful computers. These servers are also sometimes built using hundreds or thousands of computers.<\/p>\n\n\n\n

This is done so that the servers can have high computational power and storage capacity when many users are accessing and manipulating the information simultaneously.<\/p>\n\n\n\n

Both spreadsheets and databases can be owned by small or large businesses. It is often managed by a single individual who has control over the data within.<\/p>\n\n\n\n

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How is Blockchain different from a database?<\/h3>\n\n\n\n

While a blockchain stores information just like databases, there are quite a few areas in which it\u2019s different. Let\u2019s review these few areas where this technology differs in:<\/p>\n\n\n\n

Storage<\/h4>\n\n\n\n

Blockchain structures the data that it has collected into groups. These groups of information are also known as blocks. A block has a specific storage capacity, and once it is all used up the block connects itself to a previously filled block.<\/p>\n\n\n\n

The connected blocks then form a chain, thus the name blockchain. When a new block has all the information compiled into a group, it is then added to the chain.<\/p>\n\n\n\n

Whereas a database structures its data into tables, this technology structures its data into a group and then connects them by chaining them together with previous blocks of information.<\/p>\n\n\n\n

Blockchain is also a system that makes an irreversible timeline of data. When a block is filled in with information, it is given a timestamp of when it was added to the chain.<\/p>\n\n\n\n

Decentralized<\/h4>\n\n\n\n

Blockchain technology is also decentralized in nature which means that there is no involvement of a third party. Usually during transactions, while purchasing goods and services, it involves a third party like the banks and governmental organizations.<\/p>\n\n\n\n

For example, if you wish to transfer money from one country to another, then you would have to pay the interest rates and exchange rates specified by the banks or governmental organizations as a fee for transferring money from one bank to another.<\/p>\n\n\n\n

Whereas cryptocurrencies that use this chain technology are decentralized, which means you wouldn\u2019t have to pay any fee for transferring the virtual currency from one account to another.<\/p>\n\n\n\n

Transparency<\/h4>\n\n\n\n

Just like a database that has a server to store information that is stored across multiple computers, blockchain also stores its information across multiple computers which are called nodes.<\/p>\n\n\n\n

All nodes have the list of transactions done using the specified cryptocurrency. If one node has an error, then it uses other nodes as its reference point to correct itself. There is no one node that can alter information held within it, thus making the blockchain irreversible.<\/p>\n\n\n\n

If a change needs to be made, then the majority of the computers that make up the computing power would need to agree on the said changes.<\/p>\n\n\n\n

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How does Blockchain work?<\/h2>\n\n\n\n

Here are the three important concepts that help this technology to work: blocks, nodes, and miners.<\/p>\n\n\n\n

Blocks <\/h3>\n\n\n\n

Each block in a chain consists of three basic elements: <\/p>\n\n\n\n