An Explanation of Blockchain Technology

Blockchains are becoming more and more prevalent in the financial world, and understanding how they work is a key concept to understanding this shift.

It may sound complicated, but it truly isn’t; a blockchain is simply a different type of database. It works differently than say a “cloud” or “commercial” database. A blockchain organizes pieces of information into “blocks” (the block in blockchain). When these blocks are filled, it is a permanent action on the blockchain network in a “chain”-like structure of other blocks that pertain to a certain specific set of data. What decides when these blocks are filled? That depends on the size-capacity of the block, and when it is “mined”. “Mining” is another term that gets thrown around quite a bit. It is a relatively complex topic; but, put simply it is a process where individuals around the world who help run a certain blockchain network are rewarded for their actions.

Why is this process special? Well, this type of database creates an unalterable timeline that is completely decentralized. This creates a very secure network that is highly resistant to attacks of any nature, or any sort of malicious intent from bad actors. This is especially important in the growing popularity of smart contracts and decentralized finance, as Bitcoin (BTC) emerges in the modern day along with other forms of cryptocurrency.

Why does this matter to the individual? In a growing world of cryptocurrency and

decentralized finance, it is important to understand the core principles behind the processes by which they occur.

Sources:

“Blockchain Explained.” Investopedia, Investopedia, 1 June 2021, www.investopedia.com/terms/b/blockchain.asp.

Wikipedia contributors. “Decentralized Finance.” Wikipedia, 7 July 2021, en.wikipedia.org/wiki/Decentralized_finance#:%7E:text=Decentralized%20finance%20(commonly%20referred%20to,the%20most%20common%20being%20Ethereum.

Frankenfield, Jake. “Block.” Investopedia, 30 June 2020, www.investopedia.com/terms/b/block-bitcoin-block.asp.

. Pixabay. “Time Lapse Photography of Blue Lights.” Pexels, Pexels, 2017, www.pexels.com/photo/time-lapse-photography-of-blue-lights-373543.