Blockchain is an invention that was initially designed for the digital currency Bitcoin as it lets digital information to be distributed and secures it. However, the technology world has now found it useful in far more applications than this.
To describe simply, the Blockchain is a distributed ledger of similar information records called blocks. This ledger is continually growing, and all the blocks are linked by cryptography. The information that is held by a Blockchain is a shared and continually updated database. One of the strong positives of the Blockchain that makes it so secure is that this database is not stored or centralised in one single location. It is hosted by millions of computers on the chain so there are several copies of the ledger and consequently, it will take a tremendous amount of computing power to hack into the chain and corrupt the records. In theory the amount of computing power needed to perform a hack can be devised but practically this is impossible.
This post covers the benefits of the Blockchain, how it works and how it achieves security and transparency of information.
Say client A wants to carry out a transaction with client B, a trusted third party is involved and holds the transaction record. For example, client A has a financial transaction with client B, there is an authentication and then the financial authority keeps a record of this in a secured ledger as the figure depicts. This is the case with other applications like Weddings where the Government will keep a record of this and so on.
Looking at the images, client A wants to carry out a transaction with client B, and now there is a ‘math competition’ (explained shortly) to process this transaction amongst the nodes in the Blockchain. The blocks labelled M refer to Mining nodes. These mining nodes not only hold copies of the ledger but also process transactions that are included in the chain on completion.
The miner that wins the competition handles the transaction and processes it and generates a result which is a new block now added to the chain. Now, there is no need for a third party as it is all about the mathematical algorithm. This is how other transactions are handled in the chain.
As seen from the above figure describing the transactions and figure 1, the Blockchain has a peer to peer architecture with every node having a copy of the ledger.
The Software is also open source, easily accessible and removed the need for any managing party as it self-managing.
When a transaction is initiated in the Blockchain, the miners in the network compete to solve this new math equation (miners are rewarded) to process the new transaction. This math to be solved is a hash which is an algorithm that is turned to a large amount of data that has a fingerprint with a fixed length.
The same input data produces same hash but a single change completely changes the hash. The result returned is the verifiable fingerprint. Bitcoin uses the SHA256 hash function that returns a fixed 256-bit fingerprint.
There is a required difficulty associated with generating a fingerprint for a new block that miners need to meet, this is summarised below:
In summary, the mining process involves:
Blockchain has been used in various applications and keeps growing. For example, some cloud file storage services now split up files, share around different hard drives on a chain and the ledger is managed by the Blockchain.
The potential of the Blockchain moving forward is huge. Applications such as housing could find this useful where a potential buyer could view the record of a house and contact the owner if interested not needing agents. Healthcare, globalising public records and the likes could also find use of the Blockchain. One thing to keep in mind is who the miners will be and what will motivate them to work in the given application as mining requires computing power as discussed.