Blockchain is a digital ledger based on distributed network. The database is not managed by any particular body; instead, everyone in the network gets a copy of the whole database.
Block chain is a foundational technology similar to the Internet which was a similar foundational technology which revolutionized the world.
Let’s understand this through a practical scenario which is the Bitcoin block chain technology. These are 2 different person and they need to transfer money between them. In the current system of payment process this is done with the help of a middle man which are banks. A block chain technology completely eliminates the requirement of an agency or middle men.
Transactions like purchase and sales are stored in records called ledgers. Ledgers are accounts or records which store the transactions. These ledgers instead of storing in a centralized server, is distributed to all the parties in the network which are also called the nodes. Hence this is called a distributed network.
Now when a transaction happens between 2 parties, this information is broadcasted to all the nodes available in the network. Now all the nodes in the network needs to approve this transaction for the purpose of entering this in the ledger. This process is called mining. This creates 2 events, one; a Bitcoin is generated and another; transaction is approved. Once the transaction is approved miner will receive a Bitcoin and the transaction is added to all the publically available ledgers. Every transaction is sequentially stored in all the ledgers and links to the previous transaction. This creates an audit trial for the transaction and this makes the transaction irreversible.
All transactions are transparent and publically available at the same time it does not reveal the identity. This is possible with the help of public key which are called wallets. Bitcoin is stored in wallets and wallet address are shared publically. You can use different wallets for different transactions which can ensure the transactions are pseudonymous, which means transactions are transparent at the same time privacy is maintained.
These transactions are programmable and you can add metadata to these transactions. These have resulted in the creation of smart contracts in the block chain where all the contract details can be stored inside the program which will help to trigger the transactions based on the events mentioned in the contracts. Ethereum block chain is an example for this.
So, to summarize, the characteristics of Blockchain include:
a. Distributed network and hence less vulnerable to hacking
b. Peer to peer network
c. Transactions are irreversible which creates an audit trail
d. Requires confirmation by the majority hence secure
e. Programmable transactions
f. Even all the data is publically available, transactions are pseudonymous
g. Foundational technology can revolutionize the way financial transactions happen.