Blockchain may seem complicated, and it can be, but its core concept is quite simple. A blockchain is a type of database which is a collection of information that is stored electronically on a computer system. Information or data in the databases are usually structured in table format to allow easier searching and filtering for specific information.
What is Blockchain?
Blockchain is a system used to store or record information in a way that makes it difficult or impossible to be hacked, cheated, or changed. It is essentially a digital ledger of transactions that is distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction takes place on the blockchain, a record of that transaction is added to every participant’s ledger.
Blockchain is simply defined as a decentralized database, managed by multiple participants known as Distributed Ledger Technology or DLT. A Distributed Ledger records the origin of a digital asset and transactions, like the exchange of assets or data, among the participants in the network.
Data on a blockchain is unable to be modified, which makes it ideal for cybersecurity and payments. If one block in one chain changed, it would be immediately apparent it had been tampered with. If hackers want to corrupt a blockchain system, they will have to make changes to every block in the chain, across all of the distributed versions. Blockchain technology has been the foundation of cryptocurrencies such as bitcoin, and multiple uses are emerging.
Blockchains like Bitcoin and other cryptocurrencies are constantly growing as blocks that are being added to the chain, which significantly enhances its security.
How does Blockchain work?
All network participants have access to the shared distributed ledger and its immutable record of transactions, with transactions, are recorded only once unlike typical of traditional business networks.
No participant can change a transaction on the immutable records after it’s been recorded to the shared ledger. If it happens that a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible. To speed transactions, a set of rules known as a smart contract is stored on the blockchain and executed automatically.
Advantages of Blockchain
- Decentralization: No one computer or organization can own the chain. Instead, a distributed ledger via the nodes is connected to the chain. Nodes can be any electronic device that maintains copies of the blockchain and keeps the network functioning.
- Enhanced security: Blockchain prevents unauthorized activity, by creating an end-to-end encrypted record that can’t be altered. Information is stored across a network of computers and not a single server, making it difficult for hackers to access or manipulate data.
- Higher transparency: Thanks to the distributed ledger, transactions and data are recorded identically in multiple locations. All network participants with permissioned access see the same information at the same time, which provides full data transparency. All transactions are immutably recorded, and are time- and date-stamped. This enables all network participants to view the entire history of a transaction and virtually eliminates any possible opportunity for fraud.
- Increased efficiency: Transactions can be done in a faster and more efficient possible way. Documentation also can be stored on the blockchain along with transaction details.
- Automation: With smart contracts, transactions can be automated, which increase the process efficiency and speed even further. Smart contracts reduce human intervention and reliance on third parties.
What’s the difference between Blockchain and Bitcoin?
Blockchain is the technology that fosters Bitcoin, while Bitcoin is not the only version of a blockchain distributed ledger system in the market. There are several other cryptocurrencies with their own blockchain and distributed ledger.
With smaller networks, these cryptocurrency blockchains become more vulnerable to hacking attacks.
The goal of blockchain is to allow digital recording and distribution of information, but not edit them. Blockchain technology was first implemented as a system where document timestamps could not be tampered with. But it has never been applied until almost two decades later, with the launch of Bitcoin in 2009.
The Bitcoin protocol is built on a blockchain. Bitcoin uses blockchain as a means to transparently record a ledger of payments, but blockchain can theoretically be used to immutably record any number of data points. Nowadays, there are a variety of blockchain-based projects looking to implement blockchain in ways to help society other than just recording and keeping transactions.
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