A blockchain is a chain of transaction records in a database like a financial ledger. The transactions are recorded in the database using digital encryption to augment the security.
In addition, the database itself is managed by a network of computers where the ownership of storing and writing in the database resides with no one in particular. This makes the ownership decentralized leading to high integrity and authenticity.
The databases used to store and manage data are controlled by a single individual or organization. Normally there are set of checks defined so that data’s integrity is maintained. But still, there is always a possibility that any individual or organization misuses the privilege to temper the data for its own benefit. This is especially important for databases that store financial or other critical data of customers. Moreover, the data can be hacked and misused by hackers.
This leads to issues of data security, data integrity and data transparency. Now if the database is made distributed i.e. having multiple copies of it, the issue of data integrity can be taken care of. Even if one of the copy is tempered or hacked, the data integrity can be restored using the copies. But in this scenario, how do you manage the new data entries? Not everyone with a copy of the database can be given right to make new entries to database. This will put all the copies out of sync leading to data corruption.
Here Blockchain comes to the rescue.
How Blockchain Works?
Blockchain operates in a network of computers where each computer is a node and has a complete authenticated copy of the database.
Each node potentially has an option to write to the database. When a new transaction is made in the network, a consensus protocol kicks in based on which the node who will write the transaction is decided. Since all nodes have equal opportunity to be the node selected, it decentralises the control.
A number of transactions are clubbed together to form a block and that block is added by the node selected for the purpose. While adding the block, a reference of the last added block is added to it creating an ordered chain called Blockchain.
Blockchain’s distributed and decentralized consensus model makes the data secure, transparent and authentic.