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A Blockchain is an immutable database in which transactions can be stored. It could, for example, store payments with a digital currency such as Bitcoin or contain important data exchanged by multiple parties, such as contracts, certificates or property deeds.

The data is stored as blocks of information that are digitally ‘signed’ by both parties, without the intervention of a third party and are directly stored in the blockchain.

All data is encrypted prior to storage on the Blockchain by using cryptography. Digital payment methods that use Blockchain technology, such as Bitcoin, are therefore referred to as ‘cryptocurrency’. All transactions are stored in blocks within a large network of computers (nodes). A new block always contains information about the previous block, which in turn contains information about the previous one. This creates a long, unchangeable and secure information chain.

Most traditional databases are centrally organized. This means that there is one location where all data is stored. This is different with Blockchains: there is no central server, but there are multiple nodes that all contain an exact copy of the blockchain database.

Because of their decentralized nature, Blockchains don’t rely on single an owner or supervisor, as is the case with conventional databases. The supervision lies with the users themselves: New transactions are stored in the database by the nodes. In order to do so, nodes must first generate a hash that indicates that all information is correct. All nodes must reach consensus that the hash sequence is correct. Only then is the information stored in the chain.

All changes to the database are automatically copied to all nodes. The system is therefore not dependent on one central database. If one of the computers in the network is hacked or turns malicious, there are still the other nodes, each with their own copy of the database. Due to this, Blockchains are more secure than systems with a central database. Because of their consensus mechanism, it is nearly impossible for malicious nodes to create incorrect transactions or manipulate data.

Updated on July 9, 2021
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*Paid Advertisement. Not financial advice. RugDoc is not responsible for the projects showcased here. DYOR and ape safu.