What Exactly Is a Blockchain?
A blockchain is a distributed database that is shared across computer network nodes. A blockchain, like a database, saves information electronically in digital format. Blockchains are well recognised for their critical function in cryptocurrency systems such as Bitcoin in keeping a secure and decentralised record of transactions. The blockchain’s novelty is that it ensures the accuracy and security of a data record and produces trust without the requirement for a trusted third party.
The way data is organised differs significantly between a traditional database and a blockchain. A blockchain accumulates information in groupings known as blocks, which store sets of data.
Blocks have specific storage capabilities and, when full, are closed and connected to the previously filled block, producing the blockchain, a data chain. All new information that follows that newly added block is assembled into a newly formed block, which is then added to the chain once it is complete. A database typically organises its data into tables, but a blockchain, as the name suggests, organises its data into pieces (blocks) that are connected together. When implemented decentralizedly, this data structure creates an irreversible temporal line of data. When a block is completed, it is set in stone and becomes a part of this timeline. When a block is added to the chain, it is given a specific time stamp.
Blockchain is a sort of shared database that differs from traditional databases in the way data is stored; blockchains store data in blocks that are then connected together using encryption. As new data arrives, it is added to a new block. Once the block has been filled with data, it is chained onto the preceding block, resulting in the data being chained together in chronological sequence. A blockchain may hold several sorts of data, but its most popular application to date has been as a transaction ledger. In the case of Bitcoin, blockchain is employed in a decentralised manner, such that no single person or organisation has power—rather, all users keep control collectively. Because decentralised blockchains are unchangeable, the data entered is irreversible. In the case of Bitcoin, this implies that all transactions are permanently recorded and accessible to anybody.
How Does a Blockchain Function?
Blockchain’s purpose is to enable digital information to be recorded and disseminated, but not modified. A blockchain, in this sense, serves as the foundation for immutable ledgers, or records of transactions that cannot be changed, erased, or destroyed. As a result, blockchains are often referred to as distributed ledger technology (DLT). The blockchain idea, initially suggested as a research project in 1991, before its first broad use in use: Bitcoin
Since then, the usage of blockchains has grown exponentially, thanks to the development of multiple cryptocurrencies, decentralized finance (DeFi) apps, non-fungible tokens (NFTs), and smart contracts.
Assume a corporation runs a server farm with 10,000 machines that are utilized to manage a database that contains all of its clients’ account information. This corporation owns a warehouse facility that houses all of these computers under one roof and has complete control over each of these systems and all of the information they hold. However, this creates a single point of failure. What happens if the power goes out at that location? What happens if its Internet connection is lost? What if it catches fire and burns to the ground? What if a malicious actor deletes everything with a single keystroke? The data is either lost or damaged in either situation.
A blockchain allows the data in that database to be distributed across several network nodes in different places. This not only adds redundancy but also ensures the integrity of the data contained in the database—if someone tries to change a record in one instance of the database, the other nodes are not affected, preventing a bad actor from doing so. If a single user tampers with Bitcoin’s transaction record, the other nodes will cross-reference each other and readily identify the node with inaccurate information. This approach aids in the establishment of a precise and visible order of occurrences. As a result, no one node in the network may modify the information contained inside it. As a result, information and history (such as cryptocurrency transactions) are irreversible. Such a record might be a list of transactions (like with cryptocurrencies), but it is also feasible for a blockchain to store additional information such as legal contracts, state identifications, or a company’s goods inventory. To validate new entries or records to a block, a majority of the processing power in the decentralised network must agree. Blockchains are protected by a consensus method such as proof of work (PoW) or proof of stake to prevent bad actors from confirming bogus transactions or duplicate spending (PoS). These techniques allow for consensus even when there is no one node in command.
Because of the decentralised structure of Bitcoin’s blockchain, all transactions can be transparently watched by owning a personal node or utilising blockchain explorers, which allow anybody to witness transactions taking place in real time. Every node maintains its own copy of the chain, which is updated as new blocks are confirmed and added. This means that you could follow Bitcoin wherever it went if you wanted to. Exchanges, for example, have been hacked in the past, and customers who stored Bitcoin on the exchange lost everything. While the hacker may be completely anonymous, the Bitcoins they obtained are easily traceable. It would be known if the Bitcoins stolen in some of these attacks were relocated or spent someplace.
Of course, the Bitcoin blockchain (as well as the majority of others) stores records that are encrypted. This implies that only the record’s owner may decode it and disclose their identity (using a public-private key pair). As a consequence, blockchain users may stay anonymous while maintaining transparency.
Is Blockchain Trustworthy?
In numerous ways, blockchain technology delivers decentralised security and trust. To begin, new blocks are always kept in a linear and chronological order. That is, they are always added to the blockchain’s “end.” It is exceedingly difficult to go back and change the contents of a block once it has been added to the end of the blockchain unless a majority of the network has achieved a consensus to do so. This is due to the fact that each block has its own hash, as well as the hash of the block before it and the previously mentioned time stamp. A mathematical function converts digital information into a string of numbers and letters to generate hash codes. If that information is changed in any manner, the hash code will change as well. Assume a hacker, who also operates a node on a blockchain network, wishes to change a blockchain and steal bitcoin from everyone else. If they changed their single copy, it would no longer be in sync with everyone else’s copy. When everyone else compares their copies to each other, this one copy will stand out, and the hacker’s version of the chain will be discarded as invalid.
To be successful in such a hack, the hacker must simultaneously possess and change 51 percent or more of the copies of the blockchain, so that their new copy becomes the majority copy and, thus, the agreed-upon chain. . Such an assault would also need a massive amount of money and resources, since they would have to repeat all of the blocks due to the varied time stamps and hash codes. Because of the scale of many cryptocurrency networks and how quickly they are developing, the expense of accomplishing such a feat would very certainly be unattainable. This would be not only exceedingly costly, but also likely futile. Such an action would not go unnoticed by network members, who would detect such substantial changes to the blockchain. Members of the network would then hard fork off to a new version of the chain that was not impacted. This would lead the value of the attacked version of the token to collapse, rendering the attack ultimately futile because the bad actor now controls a worthless asset. The same thing would happen if a bad actor attacked the next Bitcoin fork. It is designed in this manner so that participating in the network is significantly more economically encouraged than attacking it.
Blockchain vs. Bitcoin
Stuart Haber and W. Scott Stornetta, two researchers who aimed to develop a system where document time stamps could not be manipulated with, proposed blockchain technology in 1991. But it wasn’t until nearly two decades later, with the introduction of Bitcoin in January 2009, that blockchain saw its first real-world implementation. A blockchain serves as the foundation for the Bitcoin protocol. Bitcoin’s pseudonymous developer, Satoshi Nakamoto, described the digital currency in a research paper as “a new electronic cash system that’s totally peer-to-peer, with no trusted third party.” 2
The crucial point to remember here is that while Bitcoin utilises blockchain to transparently record a ledger of payments, blockchain may theoretically be used to immutably store any amount of data items. As previously said, this might take the shape of transactions, election votes, goods inventories, state identifications, deeds to residences, and much more. Currently, tens of thousands of initiatives are attempting to use blockchains in ways other than transaction recording to benefit society—for example, as a secure means of voting in democratic elections. Because of the immutability of blockchain, fraudulent voting would become much more difficult. A voting system, for example, may be designed such that each citizen of a country receives a separate coin or token. Each candidate would then be assigned a unique wallet address, and voters would transmit their token or cryptocurrency to the address of the candidate for whom they wanted to vote.