Blockchain records the process of transactions and the tracking of assets. The tracked asset can be a tangible asset, like a house, car, cash, or land, or an intangible asset, like intellectual property, patents, and copyrights. Ultimately, almost anything can be tracked and traded on a blockchain network.
When discussing blockchain, three words are going to come up time and again;
Decentralized - Utilizing many computers worldwide that are owned by different entities.
Encrypted - A process that secures data with cryptography.
Immutable - Meaning that the information in a blockchain can't be changed.
Blockchain is a decentralized record of digital transactions distributed between many different computers. Unlike vulnerable conventional databases held on a centralized server, blockchain is decentralized, and no single entity controls it. The record, or ledger, as it is known, is distributed between users who have access to one shared copy. And, because of this decentralized, distributed system, a majority consensus is required from the network to update the ledger.
Before entering a blockchain, complicated mathematical algorithms convert information into a string of characters known as a hash. This process known as hashing ensures that encrypted data is virtually impossible to decrypt. And, a change of even a single point of data will produce a completely different hash value.
The name blockchain originates from the fact that it stores data in blocks. A block is only open for a fixed amount of time, and once passed, a miner (more about them in a bit) verifies the block and closes it. Part of the process of verifying a block is to attribute it with a timestamp. This timestamp, combined with the previous block’s header, creates the new header. The system of encrypted headers links each block in an unbreakable chain, hence the name blockchain.
This unbreakable chain is a huge preventative of fraud. If even a single piece of data in the block history was altered it would result in all the following blocks being invalid and the subsequent hashes being different. A change that would inevitably come to the attention of everyone running the blockchain.
Blocks are strictly arranged and linked as described above to maintain accurate transaction history. Likewise, transactions are also systematically placed within blocks.
Users on the network hold consensus over the exact number and history of each block and work to collate current transactions into the forthcoming block.
Upon the completion of a block, it is broadcast and linked to the end of the chain by every node on the network. The block completion and consensus process are known as proof-of-work and proof-of-stake. There are some with different names, but they esentially work the same way on their basic level. Each network uses these protocols in different ways.
Blocks usually contain the below information, although it may vary from one blockchain to another.
- Block Header - Information about the block.
- Magic Number - Value that identifies the block as part of a specific chain.
- Version - The crypto network version being used.
- Block Number - The current amount of blocks in the chain.
- Time - A timestamp to place the block in the blockchain.
- Previous Block Hash - The hash value of the previous block's header.
- Blocksize - The size limit of the block.
- Base Fee - The minimum fee necessary for a transaction to be recorded in the block.
- Transaction Counter - How many transactions are in the block.
- Transactions - A list of the transactions in the block.
- Nonce - The encrypted number that a miner must solve to verify the block and close it.
- Bits - The difficulty rating of the target hash, signifying the difficulty in solving the nonce.
A traditional database is usually controlled either by an individual user or organization on a private network. And, the data is stored in a single location, whether cloud storage, hard drive, or another form of digital storage. As you may have guessed, blockchain is the complete opposite of a traditional database. Blockchain is not controlled by a single user or organization within a private network but is managed and verified by miners across a global network of individual computers or nodes.
Block Explorer - an online search facility used to view all transactions on a blockchain.
Miner - a human with a computer responsible for validating transactions and adding them to the blockchain.
Node - computers on the network used to receive, validate and execute transactions.
In today's murky world where seemingly, ethical businesses are revealed as anything but, blockchain is like a glass of water from a mountain spring, crystal.
Blockchain records transactions across many computers in such a way that they can't be altered. The result is an audit trail of transactions with super high accuracy as it is nearly impossible to falsify data on the blockchain. Add public access to this ledger through block explorers, and you have just about the most transparent system for recording data on the planet, or off the planet for that matter!
Blockchain is not a one-size-fits-all solution, and different measures are needed to cover all the bases. Here’s a brief explanation of the different types of blockchain networks;
Public - Anyone can join and start using the network, the public ledger is accessible to all, and it’s entirely decentralized.
Private - invite-only and controlled by an institution or group, often used to manage the flow of financial transactions, contracts, medical records, and other sensitive information.
Permissioned - members of the blockchain network are known and verified.
Consortium - shared by a group of organizations, all of which can add blocks to the chain.