Blockchain can be explained in simple terms. A block is a record of transaction (cryptocurrency, medical data, voting record, etc.). Once a block is completed, it is added to the chain.
If you own cryptocurrency, your password, (or key), is access the currency stored within the account stored in the blockchain. Each account also has a public key, therefore, allowing public knowledge of the amount of cryptocurrency, but not the owner of the account.
It can also be described as a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network. This allows the participants to verify and audit transactions inexpensively. A blockchain database is managed autonomously using a peer-to-peer network and a distributed timestamping server. They are authenticated by mass collaboration powered by collective self-interests.
Access To Mass Distribution
Another popular way to describe how blockchain works is comparing it to the internet. Blockchain is it to data transfer, as the internet is to information dissemination. The internet made it possible to freely distribute information online, blockchain does the same thing for money transactions.
For instance, in the past, data distribution relied on controlled media outlets. This is a very limited and controlled distribution chain. The internet, for the first time, gave everyone the ability to distribute data themselves and bypass the large media outlets. Blockchain and cryptocurrency are very similar. They make transferring money across town or across the world simple, by bypassing traditional middlemen like banks and even governments and eliminating the traditional financial pipeline.
Participants in the network confirm transactions without a central authority to certify them; the trust is built-in. When parties enter into a transaction, the transaction is broadcast across the network of computers. The network validates the transaction, using collectively pre-agreed, trusted consensus protocols. Once validated, the transaction is recorded in a new block of data, which is in turn added to the existing blockchain. Once added, it is permanent, immutable and resides across the entire network, virtually instantaneously.
As transformative as the internet
Some experts envision the security, efficiency, and speed of blockchain as transformative as the internet, with the power to transform everyday transactions. Blockchain frees transactional records from the need for verification, much as the internet freed information from centralized control. Think email versus the post office, or Amazon vs. the department store. Moreover, blockchain has the potential to replace the trust-providing function of traditional institutions like banks and escrow agents.
Eliminating the need for third-party verification and recording
The technology has the potential for significant impact in the financial industry by reducing or eliminating the need for intermediaries that record and secure data. With blockchain, associated cost structures of intermediation would also be eliminated or reduced. Participants in the network confirm transactions without a central authority to certify them; the trust is built-in. When parties enter into a transaction, the transaction is broadcast across the network of computers. The network validates the transaction. Once validated, the transaction is recorded in a new block of data, which is in turn added to the existing blockchain. Once added, it is permanent, immutable and resides across the entire network, virtually instantaneously.
Financial institutions, saddled with layers of inefficient legacy systems, are at the forefront of implementing state of the art uses. For example, over 100 banks, other financial institutions, regulators, trade associations, professional services firms, and technology companies have joined the R3 Consortium to develop a distributed ledger platform. R3 intends to address the problem of multiple generations and layers of antiquated systems, which create inefficiency, risk and excess cost, especially because of their difficulty in working in an integrative way across multiple platforms.
J.P. Morgan recently announced a new blockchain-based payment-processing network to speed up transactions between global banks while reducing cost. BNY Mellon is applying the blockchain to transfer assets in securities lending, and the Japan Exchange Group is exploring blockchain for trading in low liquidity markets.