What is blockchain?

3 June 2021

Blockchain is currently most well-known as the technology behind Bitcoin and other cryptocurrencies, whose valuations seem to be reported in the news every day. But, essentially, it is a specific type of database used for record keeping.

A database is just a way of storing information electronically on a computer. Information is generally stored in a table format, as this makes it easier to look things up. A table format is also appropriate when the database is for a small set of users.

Blockchain stores its data in a different way. Information is collected and stored in blocks. These blocks have a defined storage space. When a block is “filled up” the block is chained to the previous block. Any new information goes into another block, which in time will be chained to the existing blocks. As new blocks are added to the chain, they are timestamped and will remain in the chain forever.

To date, the predominant use of blockchain has been to record ledger transactions and its best known use is with cyrpotcurrencies. However, blockchain can also be used to record other transactions and some businesses are using blockchain to record their products moving through a supply chain to their final destination. Using blockchain to record products moving through all points of their journey means, if there are issues such as contamination, the product can be traced backwards so the source of the issue can be identifed.

An interesting aspect of the way Bitcoin uses blockchain is that blockchain is publically available to anyone. Most businesses have a database that sits on their server and is accessible only by people on their network. Bitcoin has decentralised the database and each computer that holds information is called a node and each node holds the record of all the blockchain data.

Storing the data in a decentralised manner makes it impossible to alter the blockchain, as the other nodes would detect the change. When blocks are added to the chain, each block is given a code and timestamp. It is the open knowledge of these blockchain codes that gives it the security.

Put simply, a blockchain is a database designed to record and distribute information, not edit it. Fleetwood Mac may have been onto something when they sang “you would never break the chain”.

If you would like to find out more about blockchain technology and its uses, please contact the Findex Accounting and Business Advisory team.