What is blockchain?

A block is a collection of transaction data on a cryptocurrency network. It basically states that Person A sent this amount of the cryptocurrency to Person B, Person X received this much cryptocurrency from Person Y, and so on.

A block includes a reference to the block that immediately precedes it. The blocks create a chain, linking one to another through references to prior blocks. To change a block in the ledger, a hacker would have to reproduce the entire chain of blocks following it since not doing so would create a chain of invalid references that would not be accepted by the cryptocurrency network.

Blocks include additional information that further enables the cryptocurrency network to verify the validity of the block. The proof-of-work method of establishing distributed consensus relies on cryptocurrency miners using high computing power to add blocks to the blockchain. The computing power solves complex puzzles such as math problems for which solutions are easily verified as being correct. The miners are typically rewarded with cryptocurrency and transaction fees.

New blocks cannot be added to the blockchain without a miner computing a valid solution to the block’s puzzle. With every transaction, the blockchain grows longer and the amount of computing power required to add a new block increases. The blockchain, by design, becomes increasingly tamper-proof; a hacker today would need computing power equivalent to the majority of the computing power on the cryptocurrency network to successfully alter transactions.

Another method of establishing distributed consensus to add to a blockchain is known as proof of stake. Instead of requiring vast amounts of computing power, the proof-of-stake method enables the cryptocurrency holders with the most wealth or the oldest stakes to create blocks by verifying transactions.

Stakeholders are selected semi-randomly. Additional mechanisms are in place to prevent the wealthiest individuals from creating fake transactions or otherwise exerting too much power over the blockchain.