Blockchain Explained: The A-Z Of All You Need To Know About Blockchain
Just like the internet, blockchain is undeniably an ingenious invention of our century. This master invention is the work of Satoshi Nakamoto. Over the last ten years, blockchain has been impacting banking, investing, cryptocurrency, and there is every indication that its full impact is yet to be felt. You must have come across a blockchain definition that tells you “blockchain is a distributed, decentralized, and public ledger that stores data”.
On a more critical look, blockchain is far easier to understand than the aforementioned definition for you. By simply allowing information or data to be distributed but not copied, blockchain technology will serve as the foundation of a new type of internet. Although originally built for the digital currency called Bitcoin, there have been lots of other uses of blockchain by the tech community.
The purpose of this article is to help you understand the concept called blockchain. We hope to make you completely knowledgeable about this disruptive technology called blockchain. So, just sit back and enjoy your reading as it promises to be very fun and educating as well.
What Really Is Blockchain?
To be simply put in a non-technical term, blockchain is a time-stamped collection of immutable record of data that is managed by collection of computers not owned by a single entity. You can also see it as an incorruptible digital ledger that can be programmed to record virtually everything of value. When we talk about the blockchain, it consists of a “block” and “chain”.
The “block” is simply talking about digital information while the “chain” is the public database in which the digital information is stored. The “blocks” specifically perform three different functions:
- They store information like date, time, and amount of money involved in that particular transaction.
- The blocks also store information about who is participating in any transaction. The difference here is that instead of recording your actual name, it uses a unique “digital signature” like a username.
- Each block also store information that distinguishes them from other blocks.
The blockchain network has no central authority which actually makes it a democratized and decentralized system. As a shared immutable ledger, the data contained therein is open for anyone and everyone to see. This simply means that it is very transparent and everyone involved is held accountable for their actions. The blockchain carries no transaction cost but bears an infrastructural cost only.
How Does Blockchain Work?
Now that you have known what blokchain really is, let us then look in the working principle of this great invention. Just as the name says, blockchain is made up of multiple blocks strung together. Whenever any “block” stores new information or data, it is automatically added to the blockchain. It simply works in same manner as when you relay message from one person to another. For instance, imagine yourself passing information from A to B in a completely automated and safe manner.
The blockchain functions in like manner as well. Here, a party to the transaction initiates the process by simply creating a block. This block is verified by up to millions of computers distributed round the web. Once the block has been verified, it is added to the chain which is stored across the net. This action creates a very unique record with a unique history too. For you to falsify just a single record means that you would have to falsify the entire chain in millions of instances. Practically speaking, this is very impossible to achieve in today’s world.
How Secure Is Blockchain?
This is a very important question that you need to know when it comes to the application and use of blockchain. When it comes to the issue of security, the blockchain network is a full proof. For instance, every new block is linearly and chronologically added to the “end” of the blockchain. If you consider the Ethereum blockchain, you will see that every block occupies a particular position on the chain called a “height”.
Once a new block has been added to the chain, it becomes very difficult to alter the contents of that block. This is so because each block contains its own hash and the hash of the block before it. For example, if a hacker tries to edit your transaction in order to make you pay twice; the block hash will change but the next block will still contain the old hash of your particular block. This automatically means that such a hacker would need to change the hash on all the blocks on the chain.
In order to do this, the hacker will require an enormous and improbable amount of computing power. What this implies is that once you add a block to the blockchain network, it becomes very difficult to edit and impossible to delete. There is also what is called a “consensus model” which affords users to prove themselves before they can be part of a blockchain network. The “proof of work” employed by Bitcoin is type of this consensus model.
You need to understand that this “proof of work” does not make it impossible to be attacked by hackers but makes the attack very useless. In this consensus model system, computers must be able to prove that they have done work by solving computational math problem. Once a particular computer is able to solve any of these problems, they become qualified and eligible to add a block to the blockchain.
According to BlockExplorer, the odds of solving one of these problems on the Bitcoin network were about 1 in 5.8 trillion as at February 2019. For any computer to solve these complex problems at such odds, the computer must run programs that cost it huge amount of power and energy. So, the cost of hacker organizing such an attack will greatly outweigh the benefits thereby making such quest useless.
What is the difference between cryptocurrency and blockchain
There have been lots of misconceptions concerning the difference between blockchain and cryptocurrency. As we have explained above in this article, has to do with a distributed ledger technology that forms a “chain of blocks”. On the other hand, cryptocurrency is basically virtual, digital money, or tokens that is supported on the distributed ledger technology. The cryptocurrency can as well be defined as a tool or resource on the blockchain network.
Bitcoin was the first cryptocurrency to operate on the distributed ledger network. According to Satoshi Nakamoto, he called Bitcoin “a new electronic cash system that is fully peer-to-peer, without a trusted third party.
At the moment, it is no longer question of if this distributed ledger technology has come to stay but rather how can it be fully utilized to full potential