What is Blockchain?

Learn the basics of blockchain technology and why it can improve trust in both record keeping and financial transactions.

Blockchain is an information record system in a way that makes it difficult or impossible to change, hack or cheat the system.

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A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a series of transactions, and each time a new transaction occurs on the blockchain, a record of that transaction is added to each participant’s ledger. The decentralized database managed by multiple participants is known as Distributed Ledger Technology (DLT).

Blockchain Technology

Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash.

It means if a block in a chain was changed, it would be immediately apparent that it had been tampered with. If hackers wanted to corrupt a blockchain system, they would have to change every block in the chain, in all distributed versions of the chain.

Blockchains like Bitcoin and Ethereum grow steadily and continuously as blocks are added to the chain, significantly increasing the security of the ledger.

Storage Structure

A key difference between a typical database and a blockchain is the way the data is structured. A blockchain collects information in groups, also known as blocks, that contain sets of information. The blocks have certain storage capacities and, when filled, are chained to the previously filled block, forming a chain of data known as a “blockchain”. All the new information that follows that newly added block is compiled into a newly formed block which will then also be added to the chain once it completes.

 

A database structures its data in tables, while a chain of blocks, as the name implies, structures its data in chunks (blocks) that are chained. This makes all blockchains databases, but not all databases are blockchains. This system also inherently creates an irreversible timeline of data when implemented in a decentralized manner. When a block is filled, it is etched in stone and becomes part of this timeline. Each block in the chain is assigned an exact timestamp when it is added to the chain.

 

Decentralization

In order to understand blockchain, it is instructive to view it in the context of how it has been implemented by Bitcoin. Like a database, Bitcoin needs a collection of computers to store its blockchain. For Bitcoin, this blockchain is just a specific type of database that stores every Bitcoin transaction that has ever been made. In the case of Bitcoin, and unlike most databases, these computers are not all under the same roof, and each computer or group of computers is operated by a unique individual or group of individuals.

 

Imagine that a company owns a server made up of 10,000 computers with a database that contains all the information of your customer’s account. This company has a warehouse that contains all these computers under one roof and has full control of each of these computers and all the information contained in them. Similarly, Bitcoin consists of thousands of computers, but each computer or group of computers that contains its blockchain is located in a different geographic location and all are operated by separate individuals or groups of people. These computers that make up the Bitcoin network are called nodes.

 

In this model, the Bitcoin blockchain is used in a decentralized way. However, there are private and centralized blockchains, where the computers that make up your network are owned and operated by a single entity.

 

In a blockchain, each node has a complete record of the data that has been stored on the blockchain since its inception. For Bitcoin, the data is the complete history of all Bitcoin transactions. If a node has an error in its data, you can use the thousands of other nodes as a benchmark to correct yourself. In this way, no node within the network can alter the information contained in it. Because of this, the transaction history in each block that makes up the Bitcoin blockchain is irreversible.

 

If a user tampered with the Bitcoin transaction log, all other nodes would cross-reference each other and easily point to the node with the wrong information. This system helps to establish an exact and transparent order of events. For Bitcoin, this information is a list of transactions, but it is also possible that a blockchain contains a variety of information such as legal contracts, state IDs, or a company’s product inventory.

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To change the way that system works or the information stored in it, most of the computing power in the decentralized network would need to agree to those changes. This ensures that any changes that occur are in the best interest of the majority.

 

Is blockchain safe?

Blockchain technology accounts for security and trust issues in various ways. First of all, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. If you take a look at the Bitcoin blockchain, you will see that each block has a position on the chain, called “height.” In November 2020, the height of the block had reached 656,197 blocks so far.

safety

Is blockchain safe ?

After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block unless the majority reaches a consensus to do so. That’s because each block contains its own hash, along with the previous block’s hash, as well as the previously mentioned timestamp. Hash codes are created by a mathematical function that converts digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.

 

Here’s why that’s important for safety. Let’s say a hacker wants to tamper with the blockchain and steal Bitcoin from everyone else. If they modified their own unique copy, it would no longer align with everyone else’s copy. When everyone else cross-references their copies to each other, they would see that this copy stands out and the hacker’s version of the chain would be dismissed as illegitimate.

 

To be successful with such a hack, the hacker would simultaneously control and alter 51% of the blockchain copies so that his new copy becomes the majority copy and thus the agreed chain. Such an attack would also require an immense amount of money and resources as they would need to redo all the blocks because they would now have different timestamps and hash codes.

 

Due to the size of the Bitcoin network and how fast it is growing, the cost of accomplishing such a feat would likely be insurmountable. This would not only be extremely expensive, but it would also likely be fruitless. Doing something like this would not go unnoticed, as network members would see such drastic disruptions to the blockchain. The members of the network would then be diverted to a new version of the chain that has not been affected.

 

This would cause the attacked version of Bitcoin to plummet, rendering the attack ultimately futile, as the bad actor is in control of a worthless asset. The same would happen if the bad actor attacked the new Bitcoin fork. It is built this way so that participating in the network is much more economically incentivized than attacking it.

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