No banks, no governing bodies, no political entities has a say whatsoever to the currency that you own. Creator of Bitcoin, Satoshi Nakamoto, believes in a world where money moves fluidly anywhere in the world without limitations from any laws of any countries.
A borderless currency is powered by none other than blockchain. What is blockchain?
For this article, we’ll delve into the fundamentals of what makes a blockchain a blockchain. So, what is blockchain?
Blockchain in simple words, is just a record keeping tool that are managed by thousands of computers across the globe.
You may be wondering, if it’s just a record keeping tool, what separates it from a normal database with some servers out there? To a certain extent, I can understand why people would think that way. So let us briefly see the table down here:
The key difference is how the data is being distributed and that creates decentralization of the data. Centralized ownership of data or information can lead to the downfall of the system due to errors, corrupted actions or the shutdown from the central bodies. Whereas decentralization made the system able to sustain outside force.
To take over the blockchain system, one must need to control over more than 50% of the computers in the network, a task that is considered to be computationally and economically impossible.
This is an important trait for products that require a high level of trust and low level of control over the system in order to create an open market of the products, such as money.
What is a block
A block is essentially a ledger. A piece of “paper” that records any data being put onto it. Different blockchain may have different data being recorded into the ledger but essentially, it records:
- Timestamp – the time when the block was mined.
- Block number – the length of the blockchain in blocks.
- Nonce – number that, when combined with the every other data
- Pevhash – the unique identifier for the block that came before (this is how blocks are linked in a chain).
- Transactions list – the transactions included in the block.
Transactions collected after a period of time will be included in the transactions list. The information in the ledger will then be hash.
Hash is a “one-way” cryptographic function. In lay terms, there’s no possible way for one to calculate an input based on a specific output. In any given piece of content, it will convert it into a unique specific length of characters.
Upon doing this, you will notice, no matter what size the data is, it will always produce the same size text. For instance, you can put a whole novel into the text input and it will still produce the same size text. You will also realize that if anything changes, even just one letter, the output will drastically change. This trait is key to our next chapter.
What is a chain
A chain is a bridge or a reference to the previous block. Inside a block, we’ll find data called “prevhash”. Basically, it’s hashed data from the previous block. It acts as a reference to the previous block to ensure proper continuity of the chain of data from the previous block into the new one, and the next, and the next.
An interactive way of looking at it can be done through this link.
Every other computer in the network will have a copy of the chain. If a bad actor fakes the data from the past transactions, it will change the hash value of that chain and ultimately make it different from the rest of the computers. The network will recognize the chain is not in sync with the majority of the other computers and discard it as the true chain.
During the process of updating a block, there is another layer of mechanism that is happening called the consensus mechanism. For the purpose of simplicity of this article, we will focus on Proof of work used by the Bitcoin blockchain. The process of generating a hash of new blocks is trivial and can be done with one computer.
So the selection of which computer to generate hashed data is done by solving a required puzzle or “difficulty” to which all of the computers in the network will need to compete with each other to be the first and be rewarded with a certain amount of cryptocurrency for its work. The new block then will be recorded to the rest of computers in the network.
So, what makes blockchain unique in information technology? Here are some key features.
#1. Decentralized System
The network works collectively without any central authority to tamper the system. With no single point of failure,it is virtually impossible to shut the system down
Data is consistently recorded and stored to every computer in the network. What one homie knows, the other will, too. This allows transparency to everyone on how the network is doing and shows every activities that happened
The nature of a blockchain is designed to be unchangeable. Once the data from a block has been hashed, there’s no altering it.
Your data is safe within the blockchain because as mentioned, there’s no altering or tampering with it. For example, once you’ve made a transaction for a certain amount of crypto, no other entity is allowed to make changes to it.
The features above solidifies blockchain as a powerful technology in modern times. It gives full transparency and autonomy to the users — in essence, the power back to the people. A new movement started from this innovation which gave rise to a new financial ecosystem that is called Decentralized Finance (DeFi).
- Blockchain in simple words, is just a record keeping tool that are managed by thousands of computers across the globe
- The computers manage the blockchain by verifying the transactions, adding the transaction data into a ‘block’ and ‘chain’ them to the previous block, it will then update new block to the current overall data into their computers
- Blockchain is designed to computationally and economically infeasible to corrupt the data in blockchain
- Decentralization is a key trait where one must need to control over more than 50% of the computers in the network, a task that is considered to be impossible.
- A block is essentially a piece of “paper” that records any data being put onto it
- A chain is a unique reference id that bridge or a reference to the previous block
What is your thoughts on blockchain? Would it able to become mainstream financial system in the future?