There are both public and private blockchains. “As a reward for their efforts in validating changes to the shared data, nodes are typically rewarded with new amounts of the blockchain’s native currency-e.g., new bitcoin on the bitcoin blockchain,” says Sarah Shtylman, fintech and blockchain counsel with Perkins Coie. Transactions are typically secured using cryptography, meaning the nodes need to solve complex mathematical equations to process a transaction. This is different from a standalone database or spreadsheet, where one person can make changes without oversight. For a cryptocurrency, they might involve ensuring that new transactions in a block were not fraudulent, or that coins had not been spent more than once. A majority of nodes must verify and confirm the legitimacy of the new data before a new block can be added to the ledger. How these new blocks are created is key to why blockchain is considered highly secure. These individual computers are referred to as nodes.Īs fresh data is added to the network, a new “block” is created and attached to the “chain.” This involves all nodes updating their version of the blockchain ledger to be identical. Rather than being maintained in one location, by a centralized administrator-think of an Excel spreadsheet or a bank database-many identical copies of a blockchain database are held on multiple computers spread out across a network. While any conventional database can store this sort of information, blockchain is unique in that it’s totally decentralized. A blockchain can record information about cryptocurrency transactions, NFT ownership or DeFi smart contracts. At its core, blockchain is a distributed digital ledger that stores data of any kind.
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