Blockchain is a public database of all transactions ever made in the Bitcoin and other cryptocurrencies systems. By means of this database, every user can easily find out how many bitcoins belonged to a certain address in a certain period of time. The functioning of this database is supported by the efforts of many bitcoin miners.
How it works?
Each new block contains a hash of a previous one, which creates a chain of blocks that originates from the very first block in a system called a genesis block. It is almost impossible to edit information a separate block, because it also requires editing the information of all subsequent blocks. Due to this feature, Bitcoin system saves itself from double spending (re-spending of already expended funds) and other falsifications.
As a rule, miners build new blocks on the last existing ones, including links and references to them. Continuation of the chain is considered valid only if it contains information about previous operations in a chain and starts from a genesis block.
Different types of blockchains
Initially, blockchain technology ensured independence and freedom of every single chain and didn’t assume any administrators. Eventually, a new technology evoked interest in large corporations and financial institutions which led to the emerging of more centralized forms of blocking.
Such transformations have created different forms of blockchains. The main difference between these types lies in the level of information protection applied to every system. It provides users with different levels of access and ability to influence the development of a chain.
- Public blockchain
A public blockchain can be accessed by any person in the world. It means that any user can send transactions and wait for them to be included in a chain if they are valid. Also, a user can participate in a general process that determines which blocks should be added to a blockchain. Bitcoin system protects public chains by the principles of crypto-economics. Such public systems are generally considered to be “completely decentralized”.
- Blockchain that belongs to a consortium
Consortium blockchains are usually controlled by a pre-selected set of nodes. They usually act as “hybrid” systems that provide users with a capability to read a chain but limit their actions. As a rule, consortium blockchains allow users to send a limited number of requests and transaction confirmations. Such chains can be called “partially decentralized”.
- Private blockchain
Fully private blockchains are controlled by a single organization which is responsible for recording new blocks. The permission to read such blockchains can be public or limited to some extent.
It is absolutely not necessary for such traditional options as database management and auditing within a single company to be public. However, it is required when it comes to public activity reports.
Blockchain is a constantly-evolving algorithm. This technology goes far beyond bitcoin mining and can be used for different purposes such as medical records, storing taxes or creating digital notaries.