December 3, 2021

By Milica Kostic, Content Specialist

If your line of work or scope of interest has had anything to do with investing, banking, or cryptocurrency over the last decade, chances are that you’ve come across the term “blockchain,” the innovative database technology behind Bitcoin and nearly all other cryptocurrencies. 

But what exactly is blockchain, how does it work, and what are its advantages? Keep reading this article to find out. 

What Is Blockchain?

At first glance, blockchain may seem like a complicated matter. It definitely can be; however, its core concept is easy to grasp. Blockchain is a record-keeping technology that stores information in a way that makes it extremely difficult, if not impossible, to hack, change, or cheat the system. 

In short, blockchain is an innovative type of database – a collection of information recorded electronically and stored on a computer. As a decentralized database, blockchain is in fact stored (partially or in its entirety) on multiple computers – called “nodes” in this context – in various locations around the world. 

Blockchain Storage Structure

What makes databases different from simple spreadsheets is that they are designed to store vast amounts of information that can easily be accessed, manipulated, and filtered by any number of users at the same time.

How does blockchain differ from a typical database, you may wonder? The key difference lies in the way a blockchain is structured. Instead of storing the information in table form, the data is gathered in groups, also referred to as blocks. Blocks hold sets of information and have a finite storage capacity. Once filled, they are linked to the previous blocks through a process called “hashing,” thus creating a chain of data called the “blockchain.” All information that comes after the freshly added block will be added to a newly-formed one and ultimately linked to the chain in such a way that makes tampering with the records on the chain impossible.

Blockchain and Bitcoin

Bitcoin takes advantage of blockchain technology to keep a public ledger of all transactions processed on the network, from the very first transaction up until now. This way of recording data in blocks is also called distributed ledger technology or DLT for short.

Transparency and accountability are among the most apparent advantages of keeping a public ledger of all transactions made with this cryptocurrency. Moreover, having a decentralized network means that no government bodies or any other single person or group can control it. Instead, all users who take part in transaction verifications maintain the system and retain control collectively. All Bitcoin transactions are recorded permanently and irreversibly and are visible to everyone. 

Other Uses of Blockchain

Nowadays, blockchain technology is most commonly used for recording cryptocurrency transactions. However, thanks to its huge list of advantages – high accuracy of transactions, the absence of need for intermediaries, exceptional security, and high transfer efficiency, to mention just a few – blockchain technology has the potential to be used for many purposes, such as processing transactions in fiat currency, asset transfers, smart contacts, supply chain monitoring, and even voting. 

Milica is a business enthusiast and content specialist who takes joy in writing about marketing, HR, cybersecurity, tech, finance, health.