Unless you’ve been hiding under a rock, you’d by now, have come across the word “Blockchain” or “Bitcoin”. And, why not? These are two of the most popular buzzwords in the IT world. Now, before you jump the gun, blockchain and bitcoin are not one and the same. Blockchain is the technology that drives bitcoin. Without blockchain, there’s no bitcoin. The opposite, however, isn’t true.
And, in case you were wondering, blockchain’s potential isn’t just limited to bitcoin (or cryptocurrencies, in general). The possibilities, in fact, are endless as long as data or processing data is involved. Now, before we delve any deeper let’s understand what problems blockchain intends to solve.
Imagine transferring money to your friend (standard peer-to-peer money transfer) who lives in the same country as you are. That’s easy, right? Log into one of the many digital wallets available, load it with money, hit that send button. Voila! Money transferred instantly. Let’s take things up a notch. Imagine transferring money to one of your friend who lives abroad. Now, that’s not an instant affair. It could typically take 3 days or even more in some cases and most importantly, involves a third trusted party which charges some amount to process the transaction. That’s exactly where blockchain comes into play. It attempts to get rid of the trusted entity from the picture, reduce the amount of time for the transaction to happen and to do all of this at a cheaper price.
But again, this is just a single use case. Although it was invented for use in the bitcoin, blockchain, as mentioned earlier, has a lot of potential. We will discuss more in our next blog.
So, now that we’ve established why blockchain exists in the first place and the problems it attempts to solve, let’s get down to the nitty-gritty of blockchains.
As the name itself suggests, a blockchain is a chain of blocks that contain information which is cryptographically secured. It’s like a distributed ledger open to anyone in the network. And, it’s decentralized. What this essentially means is that we no longer require a trusted intermediary since it can run on multiple computers (usually referred to as nodes) with all of them being in sync. Now, this is an important feature. Why you ask?
Well, the very nature of the decentralized-design makes it very difficult to modify data thereby reducing the possibilities of cyber-attacks or fraud making it foolproof.
Each block is essentially made of three different entities which are as follows.
1. Transaction data
Okay, this is self-explanatory. Every transaction involves some data. This data is stored in the block. The kind of data stored in the block, however, may change based on the type of blockchain.
Alongside the transaction data, a block also has a hash. Think of it as a unique identifier, a digital fingerprint if you will, which helps one identify the information residing in a block. Whenever you make any changes inside the block, a new hash is created. In other words, it no longer will be the same block.
3. Previous Hash
Once you change something inside the block and a new hash is generated, the new block will also store the previous hash. This is how all the blocks are chained together. If you were to tamper a block, since a new hash is generated every single time a change is made, the blocks following the tampered block will be invalidated. That is, unless, of course, you tamper all the following blocks, which by the way, is very difficult and hence the high security.
In addition, if you manage to calculate the hashes of all the following blocks somehow, you’d still not be able to make the blockchain valid again, thanks to a technique called proof-of-work (PoW). It is essentially a mechanism which slows down the creation of a new block thereby forcing the intruder to redo the proof-of-work for each block. This is what makes the blockchain so secure.
We hope you now have a basic understanding of blockchain. We are planning to out more blogs in the coming weeks which revolve around blockchain. Until then, keep a tab on this space. And, do drop a comment below or reach out to us if you want to read about anything specific to the blockchain.