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How Blockchain Technology Works

Blockchain is software for creating decentralized databases. The system is completely open-source, which means anyone can view, edit and suggest changes to their base codebase. You can also get more information about blockchain at

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Despite becoming increasingly popular thanks to Bitcoin's growth, Bitcoin has actually been around since 2008, making it about a decade old.

The most important point about blockchain is that it is designed to build applications that do not require central data processing services. This means that if you use a system built on top of it, your data will be stored on 1000 "independent" servers around the world.

The service works by creating "books". In this book, users can make "transactions" with each other. The contents of these transactions are stored in new "blocks" of each blockchain database.

Depending on the application used to make the transaction, the transaction must be encrypted with a different algorithm. Because this encryption uses cryptography to "encrypt" the data stored in each new "block," the term "cryptography" describes the process of cryptographically sending all the new blockchain data an application can create.

To understand how this works, you need to understand that blockchain is not a new technology – it just uses technology in a slightly different way. The point is a data chart known as a "Merkle Tree". Merkle trees are basically a way for computer systems to store chronologically arranged "versions" of a data set to manage continuous updating of this data.

The reason this is important is that today's data systems can be referred to as "2D". This means they have no way of tracking updates to master records. Data is basically stored as a whole as is – with all updates attached directly to it. While there is nothing wrong with this, it does cause problems because the data is manual or very difficult to update.