Understanding Blockchain: The Essentials

Blockchain is a type of technology that stores blocks of information including financial transactions and other records. Blockchains are public ledgers, meaning they can be read by anyone thanks to their open-source code which is available for all to see and use.

What’s in a block? (The structure)

Blockchain is a decentralized and public ledger of all the digital transactions that have ever been executed. It was originally designed for recording transactions related to the cryptocurrency, Bitcoin, and later on it was implemented by other alternate coins as well. However, other than cryptocurrencies, you can use blockchain for recording all kinds of data digitally. The fact that it’s decentralized makes it more secure than traditional ledgers where security is just one-sided (where only one party has access to the ledger) which means that no hacker can corrupt this ledger as there is no single point of entry and any attack would require huge amount of computational power to be successful. Such an attack can cost millions of dollars in terms of equipment and electricity consumption.

Every new transaction that gets logged into the blockchain is a block that carries a timestamp and a link to the previous block. In order to back up this information, these blocks are linked in a chronological order where each subsequent block contains a hash pointer which refers to its preceding block’s hash value. This means that it’s almost impossible for hackers to make any changes because the hacker would need a huge amount of computer power which would take years or decades to re-mine all subsequent blocks that carry such altered data. This is why blockchain is considered so immutable.

How Does Blockchain Work?

Blockchain works by allowing digital information to be distributed but not copied. This means that all the data is public, and anyone can see it which brings us to this question, how does blockchain prevent people from changing the data then?

The answer lies in how transactions are validated through consensus. There are thousands of computers working together which make up a decentralized network (also called nodes) where each node receives a copy of the entire blockchain. Every few minutes, one of these nodes becomes a temporary dictator or speaker who will validate all the pending transactions that have occurred within the last few minutes. If more than 50% of other nodes agree with this speaker’s decision, then it’s approved otherwise it gets rejected. These dictatorships are extremely short (lasting for less than a minute) and are equivalent to forming multiple committees who take turns proposing the next block of data.

Now, what you need to understand here is that consensus in blockchain doesn’t require an equal number of nodes on both the sides (that would not be practical because every node will have to store a copy of all transactions which would leave us with no space) instead it just requires more nodes on one side than the other, that way 51% of computer power decides which set of data they want to go ahead with. This explains why nodes on one side having more than the other makes it extremely difficult for hackers to corrupt any transaction logs.

However, most organizations don’t keep nodes public because if anyone can access their node then any hacker could use that computer to sync every new transaction which defeats the entire purpose of decentralization. That’s why most organization choose to keep their nodes private and only give the public access to their blockchains records which can be accessed with a unique key.