Blockchains are incredibly popular now-a-days.
But what is a blockchain? How do they work? What problems do they solve? And how can they be used?
Blockchain is a way of storing data and information. There can be many ways to store information. Writing down something on a paper is a way to store information. Writing something on an excel file on the computer is a way to store information. On an excel file, information is structured in a form of table. Similarly, in a blockchain, like the name indicates, the information is structured in the form of blocks. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it is not possible to backdate them or to tamper with them, almost like a Notary. However, it went mostly unused until it was adapted by Santoshi Nakamota in 2009 to create a digital currency ‘Bitcoin’.
How blockchain works? And Why it is so secured?
A blockchain is a distributed ledger that is completely open to anyone. They have an interesting property: once some data has been recorded inside a blockchain, it becomes very difficult to change it.
So, how does that work?
Well, let’s take a closer look at a block.
Each block contains some data, the hash of the block and the hash of the previous block. The data stored inside a block depends on the type of block chain. The Bitcoin, for example stores the details about a transaction in here, such as the sender, receiver and the amount of coins.
A block also has a Hash.
You can compare a hash to a fingerprint. It identifies a block and all of its content 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 hash to change. So, in other words hashes are very useful when you want to detect changes to blocks. If hash/fingerprint of a block changes, it no longer is the same block.
The third element inside each block is the hash of previous block. This effectively creates a chain of blocks and it is this technique that makes a blockchain so secure.
Let’s take an example!
As you can see, each block has a hash and the hash of the previous block. So, block number 3 points to block number 2 and block number 2 points to block number 1. Now, the first block is a bit special, it cannot point to previous block 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 a block to change as well. In turn that will make block 3 and all following blocks invalid because they no longer share a valid hash of previous block. So, changing a single block will make all following blocks invalid. But using hashes is not enough to prevent tampering. Computers these days are very fast and can calculate hundreds of thousands of hashes per second.
You could effectively tamper with a block and recalculate all the hashes of other blocks to make your blockchain valid again. So, to mitigate this, blockchains have something called ‘Proof-of-work’. It’s a mechanism that slows down the creation of new blocks. In Bitcoin’s case, it takes about 10 minutes to calculate the required proof-of-work and add a new block to chain. This mechanism makes it very hard to tamper with blocks, because if you tamper with 1 block, you will need to calculate the proof-of-work for all the following blocks. So, the security of a blockchain comes from its creative use of hashing and 'proof of work' mechanism.
There is one more way that blockchains secure themselves and that is by being distributed. Instead of using a central entity to manage the chain, blockchains use a peer to peer mechanism and anyone is allowed to join. When someone joins this network, he gets the full copy of the blockchain. The node can use this to verify that everything is still in order.
Now, let’s see what happens when someone creates a new block.
That block is send to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which aren’t. Blocks that are tempered with will be rejected by other nodes in their network. So, to successfully tamper with a blockchain you’ll need to tamper with all the blocks on chain, redo the proof of work for each block and take control of majority peer to peer network. Only then your tempered block become accepted to everyone else. Thus, it is almost impossible to tamer a blockchain.
What about Privacy?
You might wonder that if everyone can see the information in blockchain, and the copy of blockchain will be present in every computer of the network, so any information you put in the network will cease to be private and can be seen by anyone.
Actually, the information that is stored in blockchain is not only secured but privacy protected. It can be so because the computer in the network has its own private key and a public address. Think of them as the email address and email password. When you log into your email account, you enter your email ID and password and only you can login to your account. It is the same with blockchain. However, you share your email id with others, you share your public address, not your private key. This public address is a random combination of numbers and digits. Hence, privacy remains protected.
Some Practical Uses of Blockchain:
Today blockchain is used across many fields ranging from politics to economics, education to health care. Some of its uses are:
• Money transfer and payment processing
• Supply chain monitoring
• Retail programmes based on loyalty rewards
• Digital IDs
• Digital voting
• Protection of royalty and copyright
• Sharing of Data
• Transfer of Real Estate, land and auto title
• Food safety
• Unchangeable data backup
• Saving patient’s records
• Storing school mark sheets and degrees
Future of Blockchain
In upcoming years, most of the applications will be built using Blockchain technology. All applications that we use today, be it social media, censorship or copyright issue, video upload, streaming platform or any company or platform you name, all will have to use blockchains because the user today trusts and believes in the companies that are transparent with work, not those who hide from the public eye and modify the process. For this reason, some people believe that blockchains can revolutionize the world. Like how the internet had changed history. Now we can’t imagine our lives without internet. Similarly, soon it will be difficult to imagine life without blockchains. Let’s see how it’ll be used in the future.