Facebook is set to launch its own digital currency using blockchain, Alipay plans to reinvent payments with blockchain, Tencent has applied blockchain to create digital invoices, and JPMorgan Chase aims to optimize its cross-border transfer services using blockchain. Of course, this isn’t to say that blockchain can only be applied in the financial sector, but have you noticed that most real-world blockchain projects are indeed in financial services?

This phenomenon exists because blockchain and finance are inherently compatible. At its core, blockchain solves the issue of trust in data, and the foundation of finance is none other than trust. So today, let’s explore how blockchain addresses the trust problem in data by examining how it operates.

Before diving into the specifics, let’s first understand this: as we’ve mentioned before, blockchain is a database, but unlike traditional databases, it is a distributed database.

If we compare a database to a ledger, a traditional database is like a single ledger, and only its creator—a centralized company—can record entries in it. Blockchain, on the other hand, is like multiple ledgers. In addition to the founder having one, anyone who wants to participate can obtain a copy of the ledger. Each person’s ledger holds equal status, independently recording all data in its entirety.

Once this is understood, we can explain how blockchain works. Here’s the principle: when a transaction is generated, a traditional centralized company would directly process the data, with verification and security all handled by that single entity. This means one party controls data recording and processing, which can easily lead to opacity.

In blockchain, however, data maintenance is no longer the responsibility of a single entity. Everyone (including users) can participate. Beyond the centralized company’s database, each participant has their own independent and equally authoritative database, storing complete data in a chain-like structure.

When a piece of data is generated, every participant can process it and then send the processed data to others for verification. Once the majority of participants agree that the data is trustworthy and correctly processed, a consensus is reached, and the data is recorded and synchronized across everyone’s databases.

This principle offers three key advantages:

1. Decentralization of power: Ensures fairness in data processing. No single individual can unilaterally record data, preventing manipulation or malicious falsification.

2. Resolution of trust issues: Since data is recorded across multiple databases, any tampering is easily detectable, making data more transparent.

3. Reduction of cybersecurity risks: With multiple databases coexisting, in theory, accounts cannot be lost unless all nodes are destroyed, ensuring data security.

In summary, blockchain operates as a process of collective record-keeping, mutual verification, and consensus-building. In today’s era of data explosion and eroding trust, may blockchain serve as a ray of sunlight, solving these issues and illuminating the path for future digital development.