For the sake of explaining the Blockchain technology, let us draw a parallel between Blockchain and Google Docs. Multiple parties can access & edit Google Docs simultaneously and all the changes are stored. Now imagine that this document is duplicated across thousands of computers, such that each new entry in the document is duplicated on each of the computers across the network, but if an already existing entry is tampered with, the change will not be reflected across any of the connected systems. Consequently, this entry will not match the corresponding entries in the other copies and the will be identified as compromised/corrupted. Thus, storing encrypted information in blocks across the chain helps as:
- A single entity does not control the information
- There is no single point of failure
- Corrupting a single entry across the chain would require an immense amount of computing power, which could be possible in theory but is highly unlikely and cost ineffective in reality
Blockchain enables verification by distribution – maintaining a tamper-proof, public, distributed ledger of records is an efficient way of verifying data. Each block in the chain comprises records of some recent transactions and a reference to the preceding block in the chain. A block can only contain a limited number of records. A mathematical problem is associated with each block. Miners are constantly working on solving the problem and recording transactions in a bid to complete the block before the others, in order to win Bitcoins/Altcoins. When a miner solves a problem, the answer is shared with the other mining nodes ad gets validated. For every problem that miners solve, new coins are awarded to them and they enter circulation, thereby fueling the market for that particular coin.