Part 2 of my “What is?” series
After having defined cryptocurrency as a digital currency using cryptography for security, we move on to the second key concept behind crypto: blockchain technology.
Our Investopedia link on cryptocurrency told us that cryptocurrencies are “decentralized systems based on blockchain technology, a distributed ledger enforced by a disparate network of computers”.
Wait a minute, what is a distributed, decentralized publid ledger exactly?
Well, strap yourself in for some reading because we are going to read a large chunk of the Investopedia article on blockchain. This is essential to understanding blockchain technology. Here goes…
Blockchain is a “chain of blocks […] digital information (the “block”) stored in a public database (“the chain”). ‘Blocks’ on the blockchain are made up of  digital pieces of information:
- Blocks store information about transactions, say the date, time and dollar amount of your most recent purchase from Amazon (NOTE: This Amazon example is for illustrative purchases; Amazon retail does not work on a blockchain principle)
- Blocks store information about who is participating in transactions. A block for your splurge purchase from Amazon would record your name along with Amazon.com, Inc. Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.
- Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Let’s say you made your splurge purchase on Amazon, but while it’s in transit, you decide you just can’t resist and need a second one. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes”. “
Whew! So blockchain consists of blocks of data which can contain thousands of transactions [per block]. Once verified, a block is given a “hash”, a unique identifying code attributed to the block allowing it to be added to the blockchain. Once added to the chain, a block is publicly available for everybody to view.
For example, you can consult Bitcoin’s blockchain and access transaction data related information (time, location and who added a block to the blockchain).
The advantage of blockchain is that every computer in the network has its own copy of the blockchain. This means that modifying or maniulating information is almost impossible because there isn’t a single definitive account of all events. To modify a block a hacker would need to manipulate all the copies of the blockchain on the network – [tens of hundreds of] thousands copies…talk about mission impossible!
However, a drawback of blockchain is that you never know for sure who is adding blocks to the chain: a user’s personal information is limited to his digital signature…How can you or I trust the blockchain or the network supporting it?
Well, our Investopedia articles explains that “new blocks are always stored linearly and chronologically. That is, they are always added to the ‘end’ of the blockchain. […] After a bloc has been added to the blockchain, it is very difficult to go back and alter the contents of the block […] because each block contains its own hash, along with the hash of the block before it. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.”
This means that if “
a hacker attempts to edit your transaction from Amazon so that you actually have to pay for your purchase twice. As soon as they edit the dollar amount of your transaction, the block’s hash will change. The next block in the chain will still contain the old hash, and the hacker would need to update that block in order to cover their tracks. However, doing so would change that block’s hash. And the next, and so on.
In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.”
Blockchain’s goal is to ”
allow digital information to be recorded and distributed, but not edited”.
I think I’ve cited enough of the article for you to get an idea of what blockchain technology is, but I strongly recomment you to read the entire article to deepen you knowledge of Blockchain.
Like this article? Like and follow me.
Want to continue the conversation? Leave a comment.