Understanding Blockchain
Understanding Blockchain
Bitcoin, the world’s first cryptocurrency, is based on blockchain technology, often explained as a decentralized public ledger. Huh? This guide breaks blockchain down into its various aspects so it’s easier to understand.
Blockchain literally means a chain of blocks, but not how you might think. Blocks are digital data stored in a public database, known as a chain. Blockchain is composed of blocks of digital pieces of information. Each block contains three pieces of data:
- Data about a transaction, such as its time, date, and amount.
- Data about the parties involved. It doesn’t have the actual names, but instead assigns a unique digital signature to record the transaction.
- Data to differentiate this block from all others. This is called the hash code and it’s unique. Even if the details of two transactions are otherwise identical, one can tell them apart by their unique hash codes.
One block has the capacity of storing approximately 1 MB of information, i.e. the data related to several thousand transactions.
How Blockchain works
When new information is stored within a block, several events have to occur before a block can be added to the blockchain:
- There has to be a transaction. Otherwise, no data is added and no block can be formed.
- The transaction must be verified. In the case of public information, some third party is responsible for verifying new data entries. For blockchain, it is a network of thousands of computers that is responsible for verification.
- The data is put into a block for storage. Once the transaction is verified, the data can be put into a block. The transaction amount and digital signature of each party are stored in the block along with the hundreds or even thousands of transactions.
- The block is then assigned a hash code. Only then can the block be officially added to the blockchain and become available for public viewing.
Privacy
Blockchain data is publicly available to anyone who connects their computer to the blockchain network. Once that happens, a copy of the blockchain is sent to your computer and automatically updates once a new block joins the chain. Each computer that’s part of the network has its own copy of the entire blockchain.
Each of the thousands of copies across the network is the same, making it almost impossible to manipulate the data because there isn’t a single instance to manipulate. A potential hacker would have to manipulate every single copy of the blockchain across the entire network, which is much more difficult.
Security
Blockchain addresses security and trustworthiness concerns in a variety of ways: First, each new block is stored linearly and chronologically to ensure they will always be added to the ‘end’ of the blockchain. After a block is added, it’s almost impossible to go back and adjust its data because each block has its own unique hash, along with the hash of the previous block in the sequence.
Each hash code is generated by transforming digital data into a chain of letters and numbers. If any of the data on the block is changed, the hash code also changes. If a hacker changes the data in one block, they will also need to alter each block that comes after in the blockchain. Each hash would have to be regenerated, which would take an enormous amount of computer power. So, in essence, once a block joins a blockchain, it’s almost impossible to edit or delete it.
Blockchain has become famous due to its transparent, decentralized nature that isn’t controlled by a single authority. The data is also protected against unwanted change. As a result, it has already been adopted by many other industries, although it has had the strongest impact on the financial sector to date..
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