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A blockchain is a distributed database on which Bitcoin is based. The database stores a permanent and tamper-proof record of transactional data.
A blockchain consists of two types of records: individual transactions and blocks. These are sets of data relating to transactions over a defined period. In a cryptocurrency system, transactions are generated as soon as funds are transferred from one user to another, and as soon as users create and validate blocks via specialized software designed for this purpose.
Users create a hash of the information contained in each block and store that hash with the block, which at that particular time is the end of the block chain. The other data built into the hash corresponds to the hash of the data from the previous block. This inclusion makes it virtually impossible to falsify data in the blockchain. In fact, modifying a transaction within a block would change the hash of this block and thus render the consecutive hashes associated with the following blocks incorrect. As a result, anyone who executes a hash function on a block to verify its validity would instantly discover a discrepancy between the hash and the stored value.
While it has been most commonly associated with cryptocurrency, and Bitcoin in particular, the blockchain model could be adopted as part of other financial systems. According to his supporters, its use would help secure transactions, making fraud virtually impossible.
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