The purpose of introducing new technology is to upgrade our very own systems and elevating them to a better stance. We could use a stick to stir the pot, but why do that when we can have one large stirrer that could mix, collect and pour the soup out of the pot. Same goes with the way we trade. We need trust. We need records. We need accountability for every paper we sign and every currency we give or take. And that has a cost. Our financial transactions and every legal, formal record we keep need to have the intervention of an intermediary, absence of which, the assets become vulnerable to theft or fraud. That’s precisely why Blockchain technology is taken seriously in the tech world as the new foundation on how we develop and do business. It’s tough to break down the entire process of blockchain into layman terms. Let’s get technical on how does blockchain technology works.
Hash – The nuts and bolts of blockchain
First things first, Bitcoin is not Blockchain. However, it uses blockchain technology to function as a cryptocurrency. Blockchain Technology, on the other hand, is an open and public ledger. This ledger can also be distributed and kept as a copy. In this chain, each block has three major component. The data, hash of the current block, and the hash of the previous block. The first part of the block that is the data entirely depends on the type of the blockchain. In the case of Bitcoin, the blocks record and keep the details of the sender, receiver and amount of coins which is the entire transaction itself. A block has a hash that could be equated to a fingerprint of the block. It effectively recognizes the contents of the block and is always unique. The hash of a block is initiated into calculation as soon the block is created. If you alter or modify something inside the block, the hash changes. This behavior of blockchain technology makes it useful for detecting changes in a specific block. If the hash of the block alters, it is transformed into a new block. You also have the hash of the previous block in each block. All the infusing of these three crucial elements makes this a blockchain and precisely why it is so secure. The first block that results in a subsequent blockchain is termed as the genesis block. If someone tries to tamper with the second block in the chain, the hash changes again. It will be a stupid and a reckless move because the third block and all rest of the block will be invalid because they can no longer read the hash of the previous block.
Proof-of-work – The shield and saviour
But if you look at it, hashes aren’t the only shield against tampering. You have hackers and data frauds equipped with supercomputers that can count thousands of hashes per second. They can easily tamper a block by recalculating the hashes of every other block so that it can transform into a valid blockchain. In order to save the entire blockchain from this apocalyptic recalculation, we have Proof-of-work for every block. It is a super mechanism that steps in and slows down the whole process of recalculation and revalidation that leads to tampering. In Bitcoin, the stipulated time to calculate the proof-of-work is approximately 10 minutes. Only after the calculation, a new one is added. It is super arduous for anyone to calculate the proof-of-work for an entire set of blocks which in turn makes it difficult to tamper with the blockchain. The epicenter of blockchain’s security is the creative use of hashing and proof-of-work mechanism.
Distribution – Open tight security
Blockchain technology has one more level of security that amps up the entire process of making the blockchain super secure from theft. The hero feature over here is distribution. Blockchain technology is famous because of the fact that it is a peer-to-peer network. This network of blocks allows anyone to join the network system which makes it open and transparent for users. When an individual joins this network, he/she gets the entire copy of the blockchain. The individual copy of the chain has nodes. The different segments which make up the whole data structure are called as Nodes. The node has the power to verify the order of the chain. When a new block is created, it is sent to everyone on an open network of the blockchain. The blocks are then verified by each node to check on the authenticity. If it’s verified, only then it is added to the blockchain. The foundation and objective of this whole process is Consensus.
They are the validators of each block. The automatic consequence of this will be the rejection of tampered blocks by the nodes. So in all, even if someone wants to tamper the blockchain successfully, they will need to control almost entire peer-to-peer network, recalculate the proof-of-work of each block and then tamper with every subsequent block in the chain. Only then can you succeed in entering the web of blockchain with your tampered block. And this my friend, is nearly impossible to execute.
Blockchain technology is revolutionary. It has a profound impact to the way we trade and transact, in the sense that we will have to rebuild our financial structures from the ‘Oldskool to the Newskool.’ The transition from the intermediary empire to the peer-to-peer free exchange would mark a glorifying change to fundamental ways we trade. Blockchain technology will be further used to store medical records, create E-notaries, or even to collect taxes. It is still taking baby steps to make its presence in the world. For those who might think that blockchain technology does not hold a future, a sheer look into Bitcoin will be enough to grasp the facts and benefits of blockchain and how blockchain technology works.