In this post, a simple explanation about the frequently asked question, “what is blockchain”, is provided to help enlighten readers on how blockchain really works.
What Is Blockchain?
A public blockchain is a global ledger of timestamped data transactions maintained by computers distributed throughout the world called ‘nodes.’
The data transactions that are published to the ledger in batches are grouped into segments called ‘blocks’. Blocks are linked together and layered on top of each other to create the blockchain—the complete transaction history of everything that took place within the blockchain network.
The Benefits Of Blockchain
There are several advantages of using a blockchain—which can be thought of as a distributed, publicly secure database—opposed to a centralized private database in a data center.
A blockchain is maintained by many nodes rather than one central entity, which means that there is no single point of failure like there is in a centralized system.
In addition, blockchain networks allow trust to exist without a trusted third party. Each node keeps a copy of the blockchain and executes the rules of the blockchain protocol.
The nodes perform a ‘consensus mechanism’ that determines whether a block in the blockchain is legitimate (valid) or not. These nodes and the consensus mechanism guarantee that the blocks in the blockchain are permanent, non-editable, secure, timestamped, and verifiable which allows trust to exist without a central agent.
The decentralization allows individuals to transact directly from peer-to-peer, which removes any third party intermediary from a transaction and therefore reduces costs, settlement time, and any security risks associated with having a trusted central agent.
When To Use A Blockchain
A blockchain is a good fit for any individual, business, or industry that needs a secure, public, immutable record of truth. This makes it a good fit for the accounting, logistics, banking, and finance industry to name a few of the many industries that could benefit from a blockchain-based solution.
What Blockchain To Use?
When it comes to using a public blockchain, you will find that the Bitcoin blockchain is the only public blockchain that will meet the demands of any enterprise operating at scale.
The Bitcoin blockchain has a stable protocol and transaction fees that only cost a fraction of a penny. It consistently processes thousands of transactions per second and has no block size limit.
This makes Bitcoin the only public blockchain where it is feasible to build blockchain-based apps and services that serve hundreds of thousands of people without running into network bottleneck issues.