A blockchain is the structure of data that represents a financial ledger entry, or a record of a transaction. Each transaction is digitally signed to ensure its authenticity and that nobody tampers with it, so the ledger itself and the transactions inside are assumed to be of high integrity.
The real magic comes, however, from those digital ledger entries being distributed among a deployment or infrastructure. These additional nodes and layers in the infrastructure serve the purpose of providing a consensus regarding the state of a transaction at any given second; they all have copies of their authenticated ledger distributed amongst them.
Every time a new transaction or an edit to a present transaction comes from, generally a majority of the nodes within a blockchain implementation needs to execute some algorithms and essentially evaluate and verify the history of the individual blockchain block that is proposed, and come to a consensus that the history and signature is valid, then the new transaction is accepted into the ledger and a brand new block is added to the chain of transactions. If the majority of nodes don’t concede to the addition or modification of this ledger entry, then it’s refused rather than added into the chain. This distributed consensus model is what allows blockchain to run as a distributed ledger with no need for some central, unifying authority stating what transactions are valid and (perhaps more importantly) which ones are not.
The lack of a requirement for a central authority makes it a ledger and settlement solution for joint ventures and affiliate relationships that are generally made within an equivalent or 50/50 footing without a provision for an arbitrator or other third party. Indeed, having the computers verify transactions and settle them eliminates the requirement for clearinghouses and other settlement agents, providing disintermediation in a company arrangement and generally reducing costs while improving the rate at which transactions can be made, verified, settled, and recorded.
The digital signatures and verifications make it difficult to envision a scenario wherein a bad actor could cause fraud and introduce problems that are costly to remove and resolve. The cryptographic integrity of the entire transaction, as well as examination by numerous nodes of the blockchain architecture, protect against threats and malevolent use of the technology. (With that said, it’s important to note that this security protection has largely been untested in the marketplace and, while strong on a theoretical basis, questions remain about how well the protections will hold up in the reality of the digital economy we live in today.)
The concept of blockchain works really well at tracking how assets move through a supply chain, through certain vendors and factories to transmission and transportation lines and into their final locations.