What is a Blockchain?
To understand the logic, let's see the following questions :-
- What is a blockchain?
- How does it work?
- What problems it solves?
- How it can be used?
How does it work?
Well, let’s take a closer look at a block. |
| Blocks |
Each block contains some data, the hash of the block and the hash of the previous block.The data that is stored inside a block depends on the type of blockchain.
The Bitcoin blockchain for example stores the details about a transaction in here, such as the sender, receiver and amount of coins. A block also has a hash. You can compare a hash to a fingerprint. It identifies a block and all of its contents and it's always unique, just as a fingerprint. Once a block is created, it’s hash is being calculated. Changing something inside the block will cause the hash to change. So in other words: hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it no longer is the same block. The third element inside each block is the hash of the previous block.This effectively creates a chain of blocks and it’s this technique that makes a blockchain so secure.
Let's take an example.
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| Three Blocks |
Here we have a chain of 3 blocks. As you can see, each block has a hash and the hash of the previous block. So block number 3 points to block number 2 and number 2 points to number 1.
Now the first block is a bit special, it cannot point to previous blocks because it's the first one. We call this the genesis block.
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| Blocks |
So to mitigate this, blockchains have something called proof-of-work. It's a mechanism that slows down the creation of new blocks.
In Bitcoins case: it takes about 10 minutes to calculate the required Proof-of-work and add a new block to the chain.
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| Proof of work |
This mechanism makes it very hard to tamper with the blocks, because if you tamper with 1 block, you'll need to recalculate the proof-of-work for all the following blocks. So the security of a blockchain comes from its creative use of hashing and the Proof-of-work (PoW) mechanism.
But there is one more way that blockchains secure themselves and that's by being distributed.
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| Peer to Peer |
Instead of using a central entity to manage the chain, blockchains use a Peer-to-Peer network and anyone is allowed to join. When someone joins this network, he gets the full copy of the blockchain. The node can use this to verify that everything is still in order. Now let's see what happens when someone creates a new block. That new block is send to everyone on the network. Each node then verifies the block to make sure that it hasn't been tampered with. If everything checks out, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which aren't. Blocks that are tampered with will be rejected by other nodes in the network.
So to successfully tamper with a blockchain you'll need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer network. Only then will your tampered block become accepted by everyone else.
This is almost impossible to do! .Blockchains are also constantly evolving. One of the more recent developments is the creation of Smart contract.
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| Smart Contract |
Soon, others realized that the technology could be used for other things like storing medical records, creating a digital notary or even collecting taxes.
