If most people think of blockchain, they think of Bitcoin and other cryptocurrencies. However, blockchain technology has a far broader range of applications than cryptocurrencies. Many people consider blockchain to be one of the most powerful inventions of the last ten years.
Blockchain Technology in Simple Terms
Understanding what blockchain is and how it operates may be difficult for those without an IT background.
A blockchain is, at its heart, a system of storing and transmitting data. It can be classified as a database, but it varies from conventional databases in many ways. A blockchain stores data in a series of blocks, each of which contains critical information (such as transactions) as well as the previous block's cryptographic hash. If you change the information in one block, you must also change the information in all subsequent blocks.
A blockchain is a distributed database, meaning it is not housed on a single computer. Instead, several similar copies are placed on a network of computers known as nodes. The content of the blocks is checked by the network's consensus of all nodes. This makes changing any information already in the blocks extremely difficult, and the complexity increases as the number of nodes in the network grows.
Blockchain: History
In his dissertation from 1982, cryptographer David Chaum introduced the definition of a blockchain-like protocol for the first time. Stuart Haber and W. Scott Stornetta later identified a cryptographically safe chain of blocks in which document timestamps could not be tampered with in 1991. They developed their concept in 1992 by incorporating Merkle trees, which increased productivity by allowing more documents to be stored in a single block.
However, it was thanks to the enigmatic founder of Bitcoin, Satoshi Nakamoto, who invented the concept of blockchain technology in 2008. On October 31, 2008, a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System was released. This whitepaper summarized the current state of blockchain technology. On 3 January 2009, Satoshi Nakamoto mined the first block of Bitcoin, putting blockchain technology into effect.
Blockchain: Its elements
Block
A block is the most basic component of the blockchain, and all blocks are connected together in a single chain. Each newly generated block contains a set of recently accumulated transactions as well as data from the previous block. Transactions on the blockchain are any actions carried out by blockchain users, such as sending money, registering property rights, and so on.
When a block is formed, it is validated by other nodes on the network, and then it is linked to the chain's end if everyone agrees. It is no longer possible to alter it after this has occurred.
Decentralization
There isn't a single place where the blockchain database is held. It is duplicated on several machines at the same time, and its data is accessible to all network members. When a new block is introduced to the network, the database is updated on all nodes. The data in such a database is available to the public and easy to check. Furthermore, if one network node fails or disconnects from the chain, the network's output is unaffected.
Node
A node is a machine that stores the most recent version of the blockchain in its entirety. When a new block is added to the blockchain, all nodes' copies of the blockchain are modified.
Cryptographic Key
Encryption means that users can only change the parts of the blockchain for which they have private keys. Without private keys, transactions are impossible.
Blockchain: How it works
1. A new transaction is started by the owner of a private key.
2. The blockchain network receives the requested transaction.
3. The transaction is checked by the network's nodes.
4. The block is updated with the validated transaction.
5. The hash of the block is calculated and recorded by the miner.
6. The blockchain is updated with a new block.
7. The transaction has ended.
Blockchain: its features
Security
Information is stored on centralised servers in conventional databases; every centralised database may be manipulated or changed by unethical employees. With blockchain technology, however, this is not the case. Changing the information in one block is pointless because you'd have to modify it in all subsequent blocks because each block includes encrypted data about the contents of the previous blocks. Because each of the other network members has their own copy of the blockchain, a separate copy will be easily marked as illegitimate.
To succeed, a hacker must modify at least 51 percent of the blockchain copies, which necessitates a considerable amount of computing power. Although blockchains with fewer participants are vulnerable to the so-called '51 percent attack,' attempting such an attack on a larger network is more complicated and expensive. Even if the attack succeeds, the majority of the network participants will note the changes and will most likely build a new version of the blockchain (a fork) that does not include the changes. Via the use of private keys in the encryption scheme, unauthorized transactions are also avoided.
Transparency and Anonymity
Any user can view a blockchain's transaction history, while participants' identities are either anonymous or pseudonymous, depending on the blockchain. Participants in the Bitcoin blockchain, for example, can see each wallet's balance and transaction history while their personal data is kept private.
Immutability
Blockchains are excellent for storing information since the contents of a block can't be altered without altering the contents of all subsequent blocks in more than 51% of the network's blockchain copies. Any documents that have been checked are permanent and cannot be tampered with. This ensures that if anything is registered in the blockchain, it remains unchanged for the duration of the blockchain network.
