Blockchain is a decentralized digital ledger that stores information using cryptography. This ledger serves as a distributed database and records all transactions that take place within the network. It uses consensus algorithms to verify and validate each transaction.
Unlike traditional databases which are centralized and prone to hacking attacks, blockchain technology provides a tamper-proof public record of all transactions. In addition, it eliminates the need for middlemen or third parties because it operates by itself without any intermediaries.
The blockchain network consists of computers called nodes, which run the application code and maintain the integrity of the system. When a new transaction occurs, the node verifies the integrity of the previous transaction by comparing it with other nodes' records. Depending on the consensus algorithm, the agreement to validate transactions differs from one blockchain to another.
This process is repeated until the entire network reaches a consensus and validates the transaction. The verification of transactions takes time, but once validated, it becomes permanent.
In the past, when making a purchase, you had to trust the seller because the buyer and seller were not connected through a direct line of communication. Nowadays, if someone wants to sell something online, they have to trust the website’s servers and payment processors, which could result in trust issues.
When you make a transaction through a website, it requires several steps such as creating an account, verifying your identity, providing bank details, entering credit card information, and paying for the item. These processes involve multiple parties, which makes it difficult and risky for the seller to get paid.
With blockchain, buyers and sellers don't have to go through these complicated procedures. Instead, they can directly interact with one another and complete their transaction instantly through hard-coded rules in smart contracts. Since nodes are the ones maintaining the network, you don’t need to trust a central authority to trust the records.
This is why blockchain matters
, it eliminates the need to trust.