If you have been following banking, investing, or cryptocurrency over the last ten years, you may be familiar with “blockchain,” the record-keeping technology behind the Bitcoin network.
When we say the words “block” and “chain” in this context, we are actually talking about digital information (the “block”) stored in a public database (the “chain”).
“Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts:
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Blocks store information about transactions like the date, time, and dollar amount of your most recent purchase from Amazon. (NOTE: This Amazon example is for illustrative purchases; Amazon retail does not work on a blockchain principle as of this writing)
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Blocks store information about who is participating in transactions. A block for your splurge purchase from Amazon would record your name along with Amazon.com, Inc. (AMZN). Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.
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Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Hashes are cryptographic codes created by special algorithms. Let’s say you made your splurge purchase on Amazon, but while it’s in transit, you decide you just can’t resist and need a second one. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes.
While the block in the example above is being used to store a single purchase from Amazon, the reality is a little different. A single block on the Bitcoin blockchain can actually store around 1 MB of data.1 Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.
How Blockchain Works
When a block stores new data it is added to the blockchain. Blockchain, as its name suggests, consists of multiple blocks strung together. In order for a block to be added to the blockchain, however, four things must happen:
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A transaction must occur.
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That transaction must be verified.
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That transaction must be stored in a block.
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That block must be given a hash.
When that new block is added to the blockchain, it becomes publicly available for anyone to view—even you.
Anyone can view the contents of the blockchain, but users can also opt to connect their computers to the blockchain network as nodes. In doing so, their computer receives a copy of the blockchain that is updated automatically whenever a new block is added, sort of like a Facebook News Feed that gives a live update whenever a new status is posted.
Each computer in the blockchain network has its own copy of the blockchain, which means that there are thousands, or in the case of Bitcoin, millions of copies of the same blockchain. Although each copy of the blockchain is identical, spreading that information across a network of computers makes the information more difficult to manipulate. With blockchain, there isn’t a single, definitive account of events that can be manipulated. Instead, a hacker would need to manipulate every copy of the blockchain on the network. This is what is meant by blockchain being a "distributed" ledger.
Is Blockchain Secure?
Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain.
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. That’s because each block contains its own hash, along with the hash of the block before it. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.
In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.
The goal of blockchain is to allow digital information to be recorded and distributed, but not edited.
[Kindly note that I have shared this piece of information with the intention of making you informed of blockchain. I am not promoting you to buy or engage in buying-selling activities of any crypto-currency.]
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