How Blockchains Work

Originally, blockchain was just the computer science term for how to structure and share data. Today, blockchains are hailed the "fifth evolution" of computing. Blockchains are a novel approach to the distributed database. The innovation comes from incorporating old technology in new ways. You can think of blockchains as distributed databases that a group of individuals controls and that store and share information.

There are many different types of blockchains and blockchain applications. Blockchain is an all-encompassing technology that is integrating across platforms and hardware all over the world.

A blockchain is a data structure that makes it possible to create a digital ledger of data and share it among a network of independent parties. There are many different types of blockchains.

• Public blockchains: Public blockchains, such as Bitcoin, are large distributed networks that are run through a native token. They're open for anyone to participate at any level and have open-source code that their community maintains.
• Permissioned blockchains: Permissioned blockchains, such as Ripple, control roles that individuals can play within the network. They're still large and distributed systems that use a native token. Their core code may or may not be open source.
• Private blockchains: Private blockchains tend to be smaller and do not utilize a token. Their membership is closely controlled. These types of blockchains are favored by consortiums that have trusted members and trade confidential information.

All three types of blockchains use cryptography to allow each participant on any given network to manage the ledger in a secure way without the need for a central authority to enforce the rules. The removal of central authority from database structure is one of the most important and powerful aspects of blockchains.

The figure shows the concept of how blockchains come to agreement.

Blockchains create permanent records and histories of transactions, but nothing is really permanent. The permanence of the record is based on the permanence of the network. In the context of blockchains, this means that a large portion of a blockchain community would all have to agree to change the information and are incentivized not to change the data.

When data is recorded in a blockchain, it's extremely difficult to change or remove it. When someone wants to add a record to a blockchain, also called a transaction or an entry, users in the network who have validation control verify the proposed transaction. This is where things get tricky because every blockchain has a slightly different spin on how this should work and who can validate a transaction.