What is Blockchain: Explained
If you have ever heard of Bitcoin, then most likely you have heard of Blockchain as well. Why? Because the latter is the technology at the very heart of virtual currencies, including Bitcoin, Litecoin and Ethereum.
What is Blockchain?
Blockchain as technology was first spoken about in 1991 by researchers Stuart Haber and W. Scott Stornetta. However, it was not until 2009 that it had its first application in the real world.
If you google the name, the search engine will give you a fair number of articles about the technology which is normally called a “ledger that can record transactions”. Such transactions are made in the most efficient way. But let us get to the core of the matter.
In simple words, the name of Blockchain speaks for itself. It is a technology that implies chaining the blocks together.
Each block encodes any transaction made by a party and can be uniquely identified. What is a transaction? A transaction is any exchange of value, for instance, a purchase of groceries, or a money transfer.
As the term suggests, each new block is connected to the previous one. The chain is irreversible, which means that nobody can delete a block from it or insert a block in between the existing blocks.
How does Blockchain work?
Four steps must be taken here:
- A transaction must be made:
First, a purchase, or any exchange of value must occur to start a history of transactions.
- A transaction must be verified:
It is computers, or, rather, the network of computers that are enabled to verify a transaction. In the case of Bitcoin, there are around 5 million computers around the world). The computers basically confirm the transaction details, including the time, participants, and the dollar equivalent.
- A transaction must be encoded in a block:
Once all transactions are verified, the block that stores them must be given a unique code called hash. Besides, the block is also given the hash of the most recent block added to the chain. Once hashed, the new block can be added to the blockchain.
- Once the new block is added to the chain, it becomes available for the public to view:
The size of a single block is approximately 1 MB, so it can store a couple of thousand transactions at a time. However, it can only have one unique hash. It is essential to remember that users can opt to connect their computers to the network of blockchains. If they do it, their computer receives a copy of every single new block added. A computer connected these ways is called a node.
Eventually, every single block you have added becomes publicly available to view, so it is not anonymous. However, nobody can see the actual names of the participants, as the information about them is stored as a code. The fact that each computer in the network has a copy of each block makes it unbelievably hard for a hacker to manipulate information encoded in them.
On the other hand, how safe is it not to know who exactly is adding the blocks to the blockchain?
In Blockchain a linear, chronological sequence is used. Thus, it ensures that each new block with the data is added at the end of the chain. In Bitcoin, for instance, every block has a position that is identified as “height”. So, the newly added block would have the highest value in its position. This makes it hard to change the sequence of the blocks. Because the change in information leads to a different hash, the hacker would need to change the hash code in every single block that comes before that. How many years will it take a hacker to do it?
Blockchain simplifies the process of coordination and verification as there is always a single version of the records, or, in other words, a single database. To sum up, blockchain has plenty of benefits, such as security and quality assurance that make the technology quite appealing as an investment.
The Future of Blockchain
It has been estimated that in 2018 financial companies invested around $ 2.1 billion into the research of the new implications of Blockchain. Therefore, Blockchain is seen to have the potential to be used in many more ways than just financial transactions, but also decentralized applications, voting platforms and even server-free internet!