If you have been following banking, investing or cryptocurrency over the last ten years, you may be familiar with “blockchain” the record-keeping technology behind the Bitcoin network. And there is a good chance that only the name is about as much as you know on the topic. In trying to learn more about blockchain, you’ve probably encountered a definition like this: “blockchain is a distributed, decentralized, public ledger.” This definition does not do much good for explaining blockchain. The good news is that blockchain is actually much easier to understand than that definition sounds.
Like the name indicates, a blockchain is a chain of blocks that contains information.
But not in the traditional sense of those words. When we say the words “block” and “chain” in this context, we are actually talking about digital information, the “block” stored in a public database, the “chain”. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them almost like a notary.
However it went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin. They have an interesting property. Once some data has been recorded inside the blockchain it becomes very difficult to change it. So how does that work? Each block contains; Some data, The hash of the block And the hash of the previous block. The data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details about a transaction in there such as the sender, receiver and the amount of coins. A block also has a hash. A hash is similar to a fingerprint. It identifies a block and all of its contents and it’s always unique just as a fingerprint.
Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change. So in other words hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes it no longer is the same block. The third element inside each block is the hash of the previous block and this effectively creates a chain of blocks. And it’s this technique that makes a blockchain so secure.
Let’s take an example. Here we have a chain of three blocks. As you can see each block has a hash and the hash of the previous block. So block number three points to block number two and number two points to number one. Now the first block is a bit special; it cannot point to previous blocks because it’s the first one. We call this block the Genesis block. Now let’s say that you tamper with the second block. This causes the hash of the block to change as well in turn that will make block three and all following blocks invalid because they no longer store a valid hash of the previous block.
So changing a single block will make all following blocks invalid. With many practical applications for the technology already being implemented and explored, blockchain is finally making a name for itself. As a buzzword on the tongue of every investor, blockchain stands to make the future more accurate, efficient, and secure.