The Building Blocks of Blockchain
July 29th, 2022
Whether you’re in tech or not, you have definitely heard of the term “blockchain”. Blockchain Technology has got to be the biggest game changer of this decade. In less than 10 years, it has already changed the way multiple sectors around the world store their data and conduct their business. It could also eliminate the need for banks. A long shot, but a considerable outcome of the cryptocurrency boom.
In our previous blog, we discussed Web 3.0 - the next generation of the internet.
We spoke about the need for a decentralised version of the internet. And if you remember, we also spoke of blockchain being the backbone of Web 3.0. So let’s understand how a blockchain functions and what makes it revolutionary.
Blockchain technology might have become mainstream recently, but its research had actually begun in the 1990’s, however it wasn’t until 2009 - when Bitcoin was created - that the technology was actually implemented.
Bitcoin, as we all know, is the world’s first cryptocurrency. And initially blockchain only served as the backbone of cryptocurrency. Eventually, it was discovered that the blockchain technology can actually be separated from Bitcoin and be used in other ways as well.
In the simplest terms - blockchain is made of multiple small blocks of information that are linked together. These blocks of information are called ledgers. Visualise a storekeeper making an inventory. A record of all the goods coming in and going out of his store. Now to make this record he has to note down all the relevant information like, the date a particular item came in. The expiry date, the name of the suppliers, so on and so forth. Then as and when each unit is sold he will have to note when it was sold, who it was sold to and how many units the buyer bought.
So that is exactly what blockchain does. It stores relevant information that is transparent and visible to everyone in that network. So in the example with the store, the inventory is visible to everyone working in that store. And every individual page in the inventory book is equivalent to one single block.
Now talking about a single block, as mentioned earlier, there are small amounts of relevant information stored in this block. In the case of Bitcoin since it is a currency, transaction details are stored.
To better understand this, let’s say there are 4 people in a group - Tom, Jerry, Mike and Bruno. One day they all decide to go for a movie and Tom pays for the tickets. The rest of them - Jerry Mike and Bruno - have to pay Tom back.
Now instead of using regular bank transfers where transactions fail everyday, they decide to use cryptocurrency instead. And they all decide to send Tom 1 Bitcoin each. So the first person to pay up is Jerry.
When Jerry sends Tom a bitcoin a block is created, where the transaction is permanently inscribed. Along with the number of Bitcoins Jerry sent Tom, the details of the entire group's individual balance is displayed as well.
But these aren’t the only details that are stored in the block. Each block contains a unique hash number. A hash number is like a unique fingerprint that is generated according to the information stored in that block.
They form a chain because, along with the hash of the current block, the hash of the previous block is also displayed. So as and when a new block is created, the block would contain 1 new hash, as well as the hash of the previous block. Let’s go back to our example.
Say Jerry’s block has ABC as its hash. A day later Bruno sends across his share to Tom. In doing so a new block transcribing this transaction is created. This following block now has the updated account balances of the entire group and its own unique hash number - XYZ. Along with this it also has Jerry’s block’s hash number - ABC inscribed.
This is how using Hash numbers you can track the history of the entire chain. And this blockchain, called a ledger, is public. That means that anyone part of this chain can view the complete transaction history of that ledger.
Now you might be wondering what makes Blockchain so secure?
One can simply go change their transaction details right?
Well not exactly…
Remember that the Hash is unique to the Data inscribed in a particular block and not the block itself. So the minute you change the data inscribed in a particular block, the hash number will change as well. But the hash will only change in this block. The succeeding block will still contain the original - non amended Hash number, making the whole chain invalid because the data does not match.
One could argue that one can change the hash in all the blocks present in a chain. But this is where you should consider that it takes 10 minutes to change the data in 1 block. And some chains have upto a million boxes in them. So it’s not a viable option.
Further, there is still an additional layer of security present. Like we mentioned earlier, the blockchain or ledger is publicly distributed. So everyone on that network has a copy of this ledger. Therefore, in order to make a change, you will have to share that block with the group and they will vote whether or not that change is valid. If the majority votes “NO” then that block will get rejected and you won’t be able to make any changes. This is called the Consensus Rule.
Blockchain may have recently seen a boom in popularity but it has been around for a while now, and that should offer proof that it is going to be around for longer. We have already seen a few large and medium sectors adopt this technology to better facilitate their businesses, it will be quite fascinating to see how blockchain will be used by the rest of the world in the coming decades.
What are your thoughts on blockchain? Let us know in the comments below.