A blockchain, a kind of distributed ledger technology (DLT), is a peer-to-peer network that enables multiple users (nodes) to maintain their own identical copy of a shared ledger. Simply put, it is a decentralized database, but, rather than requiring a middleman who updates and communicates information to all participants, blockchains allow users to securely verify, execute, and record their own transactions without relying on a central authority.
There are a wide variety of blockchains on the market today; however, they are all comprised of the same basic building blocks: a distributed ledger, a consensus mechanism, and a framework for incentivizing and rewarding network participation.
As part of the blockchain, a network of distributed users (nodes) verify data such as transactions or code that are batched into blocks and subsequently accepted as part of the blockchain. Because each block of verified data contains a unique alphanumeric signature of data (hash) from the previous block, they are inextricably linked together into a “block-chain.” If someone were to attempt to alter any of the data, current or historical, written to the blockchain, it would alter the hash and the nodes would reject the new data and alterations. Every node on a blockchain maintains and updates their own copy of the ledger and it is imperative that each of these ledgers remains identical.
At least 51% of the blockchain’s nodes must agree that not only the current block of transactions, but the entire history of the blockchain’s transactions is accurate before writing the new information to the chain. They reach this agreement, or consensus, through the blockchain’s consensus mechanism. The consensus mechanism synchronizes the data across the distributed network of nodes ensuring that all copies of the ledger are identical.
Blockchains utilize a decentralized network of users, node operators, developers, and miners or stakers who are motivated by systems of aligned incentives to ensure the accuracy of the data on the chain. In many blockchain networks, rewards such as newly minted cryptocurrency or transaction fees motivate these network participants to validate transactions and create new blocks of data. This incentivized system also secures the network from fraudulent activity.