What is Blockchain?

Blockchain technology is the technology underpinning various cryptocurrencies, including bitcoin. As was briefly mentioned in the chapter above, blockchain is where the distributed ledger is, and where transactions are recorded.


Blockchain can be thought of as a permanent database that stores information in blocks. A block can be thought of as a single piece of paper that contains transaction data. For example, in the blockchain that Bitcoin uses, information like the amount of bitcoin that one sends to another can be found on the blocks. In fact, the blockchain that Bitcoin is on contains the entire history of Bitcoin transactions, functioning as the public transaction ledger for Bitcoin. In addition, it also contains a reference, called a hash, to the previous block to prove that it is a legitimate block. A block that lacks a reference to its previous block would be rejected by the bitcoin protocol. The fact that a reference is present in every block also means that we only need a single block to reconstruct all previous transactions that have ever been recorded on that particular blockchain. Each block is linked to another block to form a chain of data in chronological order, with the most recent block containing the newest information.


The blockchain can also be thought of as a shared online Excel sheet of information recording transactions and other information. Once a sheet is filled, another sheet is added to continue recording information, but only if the sheet attempting to be added to the database contains information from the sheet prior to it.


Because this same information is public and shared, anyone with a copy can conduct a cross-reference check at any time. The transparency of such blockchains make it hard for anyone to tamper data; any bad actor or hacker that tries to do so will then have an illegitimate copy that is not accepted in the blockchain.


This makes the blockchain unchangeable, or immutable, and secure.


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