Blockchain is a type of distributed database that stores a permanent and tamper-proof ledger of transaction data.
Blockchain databases consist of two types of records, individual transactions and blocks, which are collections of data pertaining to the transactions within a set time period. Blockchains are most commonly associated with cryptocurrency -- and Bitcoin in particular.
In a cryptocurrency system, transactions are created whenever funds are transferred from one user to another in a peer-to-peer architecture. Users, who are known as miners, create and validate blocks through specialized software designed for that purpose. The miners create a hash of the information in each block and store the hash with the block at what is, at that moment, the end of the blockchain.
Other data included in the hash is the hash of the previous block’s data. This inclusion makes tampering with blockchain data practically impossible. Altering any transaction in a block changes the block’s hash and makes subsequent hashes associated with the following blocks incorrect. This is important because when a hashing function is run on a block to check its validity and the hash does not match the stored value, it means the record has been tampered with or is otherwise corrupt.
The simplicity and security that blockchain offers has inspired information technology (IT) professionals in finance to investigate ways that blockchain's distributed ledger and encryption can be used to provide the banking industry with secure transactions in near-real time -- while also reducing the cost of maintaining the necessary infrastructure required for back-end processing.
This BBC vido explores the significance of blockchain: