The Basics of Blockchain Technology

Although blockchain has been growing in popularity, many people are still unsure as to what this new technology really is and how it works. In essence, blockchain is a coalescence of three main technologies which are private key cryptography, a distributed network with a shared ledger, and a reason to support network transactions, security and record-keeping.
These three form the basis of blockchain, generally defining it as a secure and decentralised ledger that cannot be tampered or altered.

Defining Blockchain Technology

This being said, there is no exact definition of what a blockchain is. While many call blockchain a “decentralised ledger of transactions”, there are many blockchains which are not associated to a cryptocurrency, others which are not recorded publicly (like MasterCard’s blockchain for example) and are not decentralised.

This is why it’s best to think about blockchain in terms of the technology being used, rather than absolute adjectives which might not be applicable in all cases.

How Does Blockchain Work?

Blockchain is a cryptographically secured chain of blocks, each block containing a set of data. Let’s break everything down briefly to make blockchain’s innate security easier to understand:

  • A block is a collection of data.
  • Each block‘s information is cryptographically encoded using a mathematical equation into a 64-character string called a hash.
  • If anything is changed in a block‘s data or contents, even just one letter or number, the resulting hash is also completely changed into an entirely different hash.
  • This means every block‘s hash is always unique.
  • Every block includes the previous block‘s hash as part of its data. Let’s call this a memory hash just to make the next section easier to understand.

How Does This Make Blockchain Secure?

If a block’s data is changed or missing, the block’s hash will be different to the memory hash present on the next block. Because a block’s data contents also include the memory hash, and is a factor in that block’s hash, if one tried to cover up their data tampering by changing the memory hash on the next block to match the altered block’s hash, then they would have to continue the process, effectively changing every single block in the blockchain.

It is this structure, using cryptographically obtained hashes to define and secure each block, which makes blockchain difficult to tamper with. However, the decentralised nature of many blockchains also plays a large part in making these chains of information secure and unchangeable.

Understanding Centralised Databases

Before we look at the decentralised nature of Blockchains, it’s important to understand how we currently store digital information in centralised databases.

Most databases use a client-server network architecture, meaning that there is a client (your computer or mobile phone) that has account permissions to access and change information stored on a central server. Once changes are made to information in the central server, it sits there until a new client with permissions comes along to view or change it again.

Although a centralised system might be protected by things like passwords and administrator privileges it is also highly vulnerable. Anyone with permissions (whether a hacker or a malevolent administrator) to the central server can make changes, steal information and delete data.

The Security of Decentralisation

In the case of a decentralised blockchain, data is processed by a network of users acting as a consensus mechanism before all updating the blockchain at the same time. Every participant in the blockchain is continuously contributing some of their computing power into maintaining and updating new data entered into the blockchain.

All nodes (contributing computers or servers) are connected and communicating about the validity of each transaction or information being added into the blockchain. Once all the nodes come to the same conclusion about the data contents within a block, they all approve and add it to the blockchain at the same time. This results in a shared and distributed ledger of transactions (in the case of a cryptocurrency blockchain like Bitcoin) that cannot be altered or tampered.

While blockchain is used for online transactions, supply chain management and smart contracts today, the technology is rapidly growing and expanding across various sectors. Hopefully, this blog has given you a better understanding of the technology behind blockchain, allowing you to keep up and better follow this growing sector.