What is a Blockchain?
A blockchain is a decentralized database that records transactions on a distributed ledger. The digital ledger is maintained by a network of peer-to-peer nodes that verify and update transactions. Because each node in the network updates the ledger with each new transaction, it’s impossible to modify the transaction history. For this reason, blockchain transactions are able to be both transparent and immutable for all users.
No single entity has the power to change or control the ledger. This exponentially increases its security and trustlessness, eliminating the need for any centralized party to maintain the ledger, which is common in traditional financial institutions.
What is a Blockchain Used For?
Blockchain technology uses cryptography to secure transactions on the network. These networks are often used to create cryptocurrencies like bitcoin and ethereum. Bitcoin is the most well-known blockchain and is considered to be the most secure blockchain.
Ethereum uses blockchain technology that enables smart contracts which are self-executing pieces of code. Smart contracts allow decentralized applications (dApps) and other types of complicated transactions to be implemented on blockchain technology.
How Does a Blockchain Work?
A blockchain is a history of transactions that are mined in blocks. Think of each block as a packet of information that is added to the database. Computers in the blockchain network, called “miners,” use computing power to verify transactions that are sent on the network.
Once a block is filled to its data limit, a hexadecimal number called a hash is created. The hash gets added to the block header and encrypted with the block’s information.
On a proof-of-work (PoW) blockchain like Bitcoin, nodes use an algorithm to solve cryptographic hashes and “mine” blocks. The first node to mine a block receives a reward. These mining rewards incentivize miners to join the network and keep it secure and decentralized.
Notable Blockchain Statistics
- Global spending on blockchain technologies was $6.6 billion in 2021
- 86% of people, according to a Deloitte survey, believe blockchain technology can enhance business processes
- As of a 2022 report, there are more than 84.02 million total blockchain wallets worldwide
- In 2023, there are roughly 336,600 Bitcoin transactions each day
- Pew Research shows 16% of Americans have invested in cryptocurrency
- Accenture analysis projects Blockchain has the potential to reduce bank infrastructure costs by 30%
Blockchain Related Terms
Ethereum — A decentralized blockchain that enables developers to build and deploy decentralized applications (dApps) and smart contracts.
BTC — The native cryptocurrency of the Bitcoin blockchain.
Smart Contract — A piece of code that autonomously facilitates and executes the terms of a contract or an agreement.
Blockchain Bridge — An interoperability tool enabling communications between two different blockchains.
Hard Fork — A significant modification to the rules of a blockchain's protocol. Hard forks are not backward-compatible, meaning all nodes will need to upgrade in order to operate successfully.