Introduction to Blockchain Technology
Database versus Blockchain
When one uses the term, "database," one means a system where data is centrally located and administered. Since the data is all in one place, performance is often excellent. Trusted employees, such as DBAs (Database Administrators) are tasked with keeping the database up and running, with appropriate back-ups.
The idea of "blockchain" is almost the exact opposite of database technology. In blockchain technology, each transaction, or block, is chained to the prior block, in chronological order. Unlike a normal, centralized database, all of the chained blocks exist on all the nodes. Each block has the hashing value of the prior block.
A blockchain network is a ledger of transactions needing protection and privacy. That's why the technology is used in Bitcoin, and other businesses that require some way to securely store transactions. Blockchain is also known as "Distributed Ledger Technology," because it started off as a ledger system.
Everybody gets Everything
Blockchain is the very opposite of centralized storage. The data, or blocks, are completely distributed to every node. Thus, there is no need for taking a "backup," since the entire network IS the backup. There is also no central target for a hacker to penetrate the system.
A central feature of blockchain is that the blocks cannot be altered in any way. No purging, no archiving, no nothing. The number of blocks grow forever. (Naturally, this brings up performance considerations.)
One feature in Blockchain technology is that no one needs to administer the database. In fact, there is no such thing as a central administrator, since there is no database to administer! All of the nodes have all of the information.
The closest thing in the database world is "multimaster replication," where all the database is automatically send to all nodes. These systems are complicated, and need experienced technicians to administer.
Miners Competing for Money
In the Bitcoin world, a set of transactions bundled into a block needs to be authenticated. This is done via special nodes called, "Miners." The miners confirm that transaction is valid, and allow it to be added to the chain.
Here's the tricky part: A miner has to do a massively resource-intensive task (hash function). The first one to successfully find the hash is paid in Bitcoin. The other miners (the "losers) in turn confirm that the "winner" has the right answer. The winner thus demonstrates a "Proof of work."
As computing power increases, the difficulty of the task is increased, so that the network as a whole is able to validate a block in about 10 minutes. The tremendous hurdle to validate a block means that an aspiring hacker cannot realistically outwit the resources of the entire network.