How does blockchain technology work?
Think of a blockchain as a historical record of transactions. Each block is “chained” to the previous block in a sequence, and is immutably recorded across a peer-to-peer network. Cryptographic trust and assurance technology applies a unique identifier—or digital fingerprint—to each transaction.
Trust, accountability, transparency, and security are forged into the chain. This enables many types of organizations and trading partners to access and share data, a phenomenon known as third-party, consensus-based trust.
All participants maintain an encrypted record of every transaction within a decentralized, highly scalable, and resilient recording mechanism that cannot be repudiated. Blockchain does not require any additional overhead or intermediaries. Having a decentralized, single source of truth reduces the cost of executing trusted business interactions among parties that may not fully trust each other. In a permissioned blockchain, used by most enterprises, participants are authorized to participate in the network, and each participant maintains an encrypted record of every transaction.
Any company or group of companies that needs a secure, real-time, shareable record of transactions can benefit from this unique technology. There is no single location where everything is stored, leading to better security and availability, with no central point of vulnerability.
To learn more about blockchain, its underlying technology, and use cases, here are some important definitions.
The key reason that organizations use blockchain technology, instead of other data stores, is to provide a guarantee of data integrity without relying on a central authority. This is called decentralized trust through reliable data.
The name blockchain comes from the fact that the data is stored in blocks, and each block is connected to the previous block, making up a chainlike structure. With blockchain technology, you can only add (append) new blocks to a blockchain. You can’t modify or delete any block after it gets added to the blockchain.
Algorithms that enforce the rules within a blockchain system. Once the participating parties set up rules for the blockchain, the consensus algorithm ensures that those rules are followed.
Blockchain blocks of data are stored on nodes—the storage units that keep the data in sync or up to date. Any node can quickly determine if any block has changed since it was added. When a new, full node joins the blockchain network, it downloads a copy of all the blocks currently on the chain. After the new node synchronizes with the other nodes and has the latest blockchain version, it can receive any new blocks, just like other nodes.
There are two main types of blockchain nodes:
- Full nodes store a complete copy of the blockchain.
- Lightweight nodes only store the most recent blocks, and can request older blocks when users need them.