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Decentralization

For the purpose of understanding blockchain, it is instructive to view it in the context of how it has been implemented by Bitcoin. Like a database, Bitcoin needs a collection of computers to store its blockchain. For Bitcoin, this blockchain is just a specific type of database that stores every Bitcoin transaction ever made. In Bitcoin’s case, and unlike most databases, these computers are not all under one roof, and each computer or group of computers is operated by a unique individual or group of individuals.



Imagine that a company owns a server comprised of 10,000 computers with a database holding all of its client's account information. This company has a warehouse containing all of these computers under one roof and has full control of each of these computers and all the information contained within them. Similarly, Bitcoin consists of thousands of computers, but each computer or group of computers that hold its blockchain is in a different geographic location and they are all operated by separate individuals or groups of people. These computers that makeup Bitcoin’s network are called nodes.


In this model, Bitcoin’s blockchain is used in a decentralized way. However, private, centralized blockchains, where the computers that make up its network are owned and operated by a single entity, do exist.


In a blockchain, each node has a full record of the data that has been stored on the blockchain since its inception. For Bitcoin, the data is the entire history of all Bitcoin transactions. If one node has an error in its data it can use the thousands of other nodes as a reference point to correct itself. This way, no one node within the network can alter information held within it. Because of this, the history of transactions in each block that make up Bitcoin’s blockchain is irreversible.


If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each other and easily pinpoint the node with the incorrect information. This system helps to establish an exact and transparent order of events. For Bitcoin, this information is a list of transactions, but it also is possible for a blockchain to hold a variety of information like legal contracts, state identifications, or a company’s product inventory.


In order to change how that system works, or the information stored within it, a majority of the decentralized network’s computing power would need to agree on said changes. This ensures that whatever changes do occur are in the best interests of the majority.