Blockchain Technology Explained

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  • NGFCET Admin
  • 2018-07-17 04:16:27

Blockchains are incredibly popular nowadays. But what is Blockchain? How do they work, what problem do they solve and how can they be used?

Like the name indicated, a blockchain is a chain of blocks that contain information. This advanced technology was originally introduced in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it is not possible to backdate them or to tamper with them. Almost like a notary.

However, it went by mostly unused until it was adopted by Satoshi Nakamoto in 2009 to create a digital cryptocurrency Bitcoin.

A blockchain is a distributed ledger that is completely open to anyone. They have an interesting property: once some data has been recorded inside a blockchain, it becomes very difficult to change it. So how does that work? Well, let’s take a closer look at a block.

Each block contains some data, the hash of the block and the hash of the previous block. The data that is stored inside a block depends on the type of blockchain. The bitcoin blockchain, for example, stores the details about a transaction in here, such as the sender, receiver and the number of coins. A block also has a hash; you can compare a hash to a fingerprint. It identifies a block and all of its components and it’s always unique, just as a fingerprint. Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change. So in another word, hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it is no longer is the same block. The third element inside each block is the hash of the previous block. This effectively creates a chain of blocks and it is this technique that makes a blockchain so secure.

Let’s take an example.

Here we have a chain of 3 blocks; each block has a hash and the hash of the previous block. So the block number 3 points to block number 2 and block number 2 points to block number 1.

Now the first block is a bit special, it cannot point to the previous blocks because it is the first one. We call this block the genesis block. Now let’s say that you tamper with the second block. This causes the hash of the block to change as well. In turn that will make block 3 and all following blocks invalid because they no longer store a valid hash of the previous block. So changing a single block will make all following blocks invalid.

But using hash is not enough to prevent tampering; computers these days are very fast and can calculate hundreds and thousands of hashes per second. You could effectively tamper with a block and recalculate all the hashes of other blocks to make your blockchain valid again. So to mitigate this, blockchains have something called proof-of-work. It is a mechanism that slows down the creation of new blocks. In Bitcoins case, it takes about 10 minutes to calculate the required proof-of-work and add a new block to the chain. This mechanism makes it very hard to temper with the blocks because if you tamper with 1 block, you will need to recalculate the proof-of-work for all the following blocks. So the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism. But there is one more way that blockchains secure themselves and that is by being distributed. Instead of using a central entity to manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join. When someone joins its network, he gets the full copy of the blockchain. The node can use this to verify that everything is still in order. Now let’s see what happens when someone creates a new block. That block is sent to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree on what blocks are valid and which aren’t. Blocks that are tempered with will be rejected by other nodes in the network. So to successfully tamper with a blockchain you will need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer network. Only then will your tampered block become accepted by everyone else. So this is impossible to do!

Blockchains are also constantly evolving. One of the most recent developments is the creation of smart contracts. These contracts are simple programs that are stored on the blockchain and can be used to automatically exchange coins based on certain conditions.

The creation of blockchain technology peaked a lot of people’s interest. Soon, others realized that this technology could be used for other things like storing medical records, creating a digital notary or even collecting taxes.

So now you know what a blockchain is, how it works on the basic level and what problems it solves.

Blog Category : Blockchain Technology

Tags: blockchain, technology

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