Blockchain - How do they work

Blockchain technology became incredibly popular nowadays after the widespread of Cryptocurrencies. In this post let’s see how do they work, what problems they solve and how can they be used?

As the name implies Blockchain Technology means a collection of blocks that hold information. The intention of creating Blockchain was to Timestamp the digital documents so that they cannot be backdated or tampered with. Although it was created in 1991, it went unused until 2009 when Satoshi Nakamoto adapted it for the creation of his Bitcoin.

The blockchain is a distributed ledger that is open to anyone. The interesting property of the Blockchain is that once a data is recorded inside Blockchain it becomes very difficult to change it or I could say its practically not possible to change the data in a Blockchain.

In Blockchain, each block contains data, the hash of the block and hash of the previous block. The data inside a block depends on the type of blockchain as in Bitcoin data inside the block are details of the sender, receiver and amount of coins in the transaction.

The hash of the block is the identifier of the block and each block has a unique hash. Once a block is created, the Hash of the block is calculated and changing something in the block will cause the hash to change. So the Hash can be used to identify the changes. Once hash of the block changes it’s no longer the same block.

The next element of the block is the hash of the previous block and this makes the Blockchain unique and tamperproof.

Let us consider a chain of three blocks. Block number 3 points to block number 2 and block number 1 cannot point to any block. And we call this special block as the genesis block.

For example, if you change block 2, then the hash of the block changes and this causes the block 3 and all following blocks invalid as they no longer hold the hash of the previous block. So changing a single block will make all following blocks invalid.

Hash itself is not enough to prevent the tampering. Because computers nowadays are fast enough to calculate hundreds of hashes per second. So we could tamper with one block and recalculate the hashes of other blocks to make the Blockchain valid again.

In order to overcome this issue blockchains have proof of work, it is a mechanism, which slows down the creation of new blocks. This mechanism makes it impossible to tamper with Blockchain because if you tamper with one block, you will need to recalculate the proof-of-work for all the following blocks. Hashing combined with proof of work mechanism makes the Blockchain secured.

Blockchains secure themselves also by being distributed. Instead of being a central entity, blockchains use a peer-to-peer network and anyone is allowed to join. If someone joins the Blockchain, he gets the full copy of the Blockchain. And this node verifies that everything is in one place. If a new block is added to chain then everyone gets the block and each node verifies that the block to make sure that it has not been tampered with. If everything is fine then each node adds the block to their 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 we will need to tamper with all the blocks on the chain then redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer network. Then the block is accepted into the Blockchain and it's quite impossible. And also Blockchains are constantly evolving. One of it is the creation of smart contracts. Let's discuss about smart contracts in another video.

The Blockchain has become familiar with many and it is used to store information like records and other secured data,

Tags: Blockchain, Bitcoin, Cryptocurrency