Blockchain is one of the buzz words today. It is considered one of the most promising emerging technologies, a technology that has the potential to transform business as we know it but what is blockchain…
What is Block Chain Technology?
Simply, blockchain is a database or digital ledger(open to anyone) of transactions but this database is different from traditional databases.
In traditional databases, data is stored on a centralized server with a single Authority empowered to change or delete the data.
In blockchain, the data is shared across a network of computers that all run on special software that ensures all data remains identical that’s not all data is secured using cryptography and can only be changed by people authorized to do so.
Before starting how blockchain works, let’s understand what a block.
A block is a piece of information that is made up of data ,the block contains a timestamp which is used to create what is called the hash of the block ,the block also has the hash of the previous block there are various kinds of data that can be stored at a block the data can be related to medical records, election information, smart contracts or land records.
The hash is the unique identity of a block much like the fingerprint of a human being.
Every block also contains the hash of the previous block, this is what creates a chain of interconnected blocks and gives this technology its name.
A timestamp is added to all transactions every time a new block is added.
How does block chain work?
Consider the example of a person named Bob, Bob wants to buy a house, he finds a house that he likes and decides to buy it.
When he buys the house the owner Tom has to sign a document that says Bob now owns the house.
Tom also has to provide proof that when he bought the house the previous owner signed a similar document giving him ownership of the house, this document also has to be given to Bob for his records, in essence, the house has to have proof of the chain of ownership all the way to the beginning.
The blockchain is like that for each unit of the chain there is a cryptographically verifiable chain of the history of ownership, in the blockchain, the registry is distributed to everybody, this means that anyone can verify at any time how many units are in circulation who owns them and what the history of their own is.
Transactions are not just verified by one single Authority but by the consensus of multiple users because the information is stored across various computers it makes it very hard for anyone to change or delete the data without others on the network noticing the result, blockchain helps to:
- Securely store and validate sensitive information.
- Establishes trust.
- Reduce costs.
- Improve speed.
- Enhance productivity.
This technique was originally described in 1991 by the 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 adapted by Satoshi Nakamoto in 2009 to create digital cryptocurrency Bitcoin.
Here we have 3 chains of blocks, as we can see each block has a hash and hash of the previous block.
So block number 3 points to block number 2 and number 2 points to number 1.
Now the first block is a bit special, it cannot point to the previous blocks because it’s the first one.
We call this as the genesis block.
Now let’s say 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 the following blocks invalid because they no longer store a valid hash of the previous block.
But using hashes is not enough to prevent tampering.
Computers these days are very fast and can calculate hundreds of thousands of hashes per second.
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 tamper with the blocks because if you tamper with 1 block, you need to re-calculate the proof-of-work for all the following blocks.
So security of the blockchains comes from its creative use of hashing and the proof-of-work.
Another secure mechanism done by itself is by distribution mechanism as mentioned earlier, in blockchain the registry is distributed to everybody, this means that anyone can verify at any time how many units are in circulation who owns them and what the history of their ownership is.
Transactions are not just verified by one single Authority but by the consensus of multiple users because the information is stored across various computers it makes it very hard for anyone to change or delete the data without others on the network noticing the result.