Understanding Blockchain Basics: Part 1

August 18

1 min read

Understanding Blockchain Basics: Part 1

In part one of a three-part series on the basics of Blockchain technology, its workings and how it is used, we start at the very beginning.

What is Blockchain?
A decentralized, distributed database (a digital ledger) that records transactions. Some key things to know:

“Distributed” means the ledger is shared across a network of computers (nodes). No single entity controls the entire network.
The data recorded on a Blockchain is immutable: It cannot be altered once entered into the ledger.
All transactions recorded on the Blockchain are transparent and can be viewed by anyone.

While Blockchain is best known for its key role in cryptocurrency infrastructure, it is used for other Decentralized Finance (DeFi) applications, Non-Fungible Tokens (NFTs) and various forms of smart contracts.

How Does Blockchain Work?
Different Blockchains have varying processes, but in general they are similar.

Transactions are collected and entered into a block, and once the block is full the data is put through a cryptographic hash process and then verified by all the nodes on the network.

The block is then added to the chain, and includes the previous block’s “block header” - a hexadecimal number - in its encrypted data to continue the chain.

Each block is linked to the one before and after, meaning none can be modified after the fact. Copies of the data are stored across multiple nodes, meaning they must all match for it to be valid.

Stay tuned for more on Blockchain benefits, challenges and applications beyond crypto in parts two and three.

The descriptions provided above are all based on publicly available information, and cannot be considered as financial advice or encouragement to invest. Sources of information used in this article include Investopedia. All transactions involving digital assets involve certain risks, which you should familiarize yourself with prior to any investment.

TOPICS

Digital Assets