Definition of Blockchain
In simple terms, it’s a distributed database that everyone can get a copy of. Every person with a copy can add new records to this database but cannot change any record once it’s in there.This property makes a blockchain great to record data in a transparent way because everyone gets to see what’s in it. How can this technology be used in the real world?
History of blockchain technology
When Bitcoin launched in 2008 it allowed people to directly transact with one another without
having to trust third parties like banks. Since then over 1600 different cryptocurrencies have been created. But let’s look beyond cryptocurrencies. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them.
How does that work?
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 amount of coins.
- A block also has a hash.
- You can compare a hash to a fingerprint.
- It identifies a block and all of its contents and it’s always unique, just as a fingerprint.
- Once a block is created, it’s hash is being calculated.
- Changing something inside the block will cause the hash to change.
- So in other words: hashes are very useful when you want to detect changes to blocks.
- If the fingerprint of a block changes, it 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’s this technique that makes a blockchain.
Example of blockchain
Here we have a chain of 3 blocks. As you can see, each block has a hash and the 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 previous blocks because it’s the first one. We call this 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 hashes is not enough to prevent tampering. Computers these days are very fast and can calculate hundreds of 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.
Proof of work
So to mitigate this, blockchains have something called proof-of-work. It’s 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’ll 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.
Peer-To-Peer Network
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 this 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 new block is send 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 about what blocks are valid and which aren’t. Blocks that are tampered with will be rejected by other nodes in the network.
So to successfully tamper with a blockchain you’ll 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. This is almost impossible to do!
Smart contracts
Blockchains are also constantly evolving. One of the more 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.
Conclusion
The creation of blockchain technology peaked a lot of people’s interest. Soon, others realised that the technology could be used for other things like storing medical records, creating a digital notary or even collecting taxes.