What Is The Blockchain? How Does It Work?

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What is the blockchain? Most of us don't know much about it. If you want to understand the blockchain, you can read this article carefully.

What is a blockchain?

 

In the simplest terms, a blockchain is a distributed ledger.

 

To understand what this means, we first have to look at its opposite: a centralized ledger. Because blockchain technology starts with finance, we will also use banks as examples to introduce them below.

 

Here's how we use a bank debit card to trade:

 

You can buy goods at the store by credit card.

 

The merchant sends a bill to your bank to get the agreed amount.

 

Your bank will verify if you are authorized to purchase.

 

The bank remits the money to the merchant.

 

Finally, the bank recorded this information in its ledger.

 

There are a lot of techniques involved here, but basically that's it. The last step is important - the bank records all the transactions made by the customer. This ledger has been back to the bank's first transaction.

 

The ledger is kept, maintained and regulated by the bank. You can read it in your online bank account, but you can't change it. The bank is fully controlled. If it decides to make a change, then you can't do anything about it.

Crucially, if a hacker can access a bank's ledger, it can lead to many problems. They can change the account balance to make it look like some transactions have never happened, and so on.

 

This is why distributed ledgers are so cool.

 

Blockchain network visualization

 

If the bank operates on a distributed ledger, each member of the bank will have a copy of the ledger, and whenever any member of the bank makes a purchase, they will tell all other members of the bank.

 

Each member will validate the transaction and add it to the ledger (the added record is called a "block"). This has some important benefits because there is no centralized authority to manipulate records. Hacking a single ledger is not a big deal because other ledgers can easily verify it.

 

On the other hand, it requires a lot of work. In short, the second system is the blockchain (at least in the financial scenario).