How Blockchains Work - dummies

Part of Blockchain For Dummies Cheat Sheet

A blockchain is a shared database that is managed by a global network of computers. Information held in the database is distributed and continually reconciled by the computers in the network. The computers are often referred to as nodes, miners, or peers. Whatever they’re called, the computers are creating and maintaining their blockchain by validating and transmitting entries. And entries are the data that is published by the users of the network.

Often this data represents the movement of cryptocurrency from one user of the network to another user of the network.

For example, when you send some Bitcoin to your friend Tom, you’re creating and publishing an entry into the Bitcoin network. In this example, the entry you created has some restrictions. The computers in the Bitcoin network will check to make sure that you haven’t already sent the data representing the cryptocurrency to another person earlier. When you send Tom the Bitcoins, his account is credited and your account is debited.

The computers in the network are preventing you from “double-spending.” In the case of the Bitcoin network, the problem is solved by requiring every computer in the network to keep a complete record of the history of all the entries made within the network. The entire history gives the balance of every account, including yours.

Not all entries in blockchains represent the movement of a cryptocurrency. Some blockchains allow for the publishing of data for a fee. Entries in these systems are not restricted; they use a pay-to-publish model. They also allow you to confirm the validity of an entry without the full history of the blockchain.

Most blockchains are not controlled by any single entity and do not have a single point of failure. All the entries are viewable by the whole network. When data is entered in a blockchain, it can’t be removed. It’s there forever.

The innovation of blockchains that makes them different from a normal database is that they achieve agreement on the history by sharing and restricting the entries without a central server or authority.