What is the Blockchain and how does it work?

  • Daniel Marsh
  • |
  • December 29, 2021

What Is Blockchain? 

Blockchain is a database distributed and shared between nodes on a computer network used for maintaining a secure and decentralized record of transactions most commonly used in the cryptocurrency systems such as bitcoin.
The innovation of blockchain has provided the possibility of guaranteeing the fidelity and security of a record of data and generating trust without the need for a trusted third party involvement.
A blockchain database structures the data into groups called blocks that hold sets of information like a list of transactions. Each block has a storage capacity and when used up, are closed and linked to the previously filled block creating a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.
Each block is given an exact timestamp that indicates its position and time it was added to the blockchain. Once a block has been closed and added to the blockchain it cannot be edited or changed in any way this inherently makes an irreversible timeline of data when implemented in a decentralized nature.
 

How Does a Blockchain Work? 

Blockchain's goal is to allow digital information to be recorded in a timeline manner with the guarantee of not being edited or changed while also being available for anyone to view. 
This is the basic foundation for an immutable ledger, or record of transactions that cannot be altered, deleted, or destroyed that doesn't require a third party to verify the authenticity of each transaction.
 

One easy way to explain how this works:

Imagine you have four friends that would like to exchange goods with each other but don't want to trust a third party to keep track of all the transactions. What could you do? 
The simple way to achieve this is to require all members of the group to hold identical ledgers with all the previous transactions. That way each member of the group will know who owns the goods exchanged and what they exchanged them for therefore, there is no possible way of any conflict in who owns what as long as everyone's ledger contains the same data. 
every time a new transaction is made it is shared with everyone in the group and once all members agree the transaction took place everyone updates their ledger to contain the same data. if one ledger is conflicting against the rest it would simply be changed to match the others.
 

Basic Transaction Process 

Every new transaction on a blockchain is transmitted to a network of peer_to_peer computers scattered in different locations around the world that solve complicated equations to confirm the validity of the transaction. Once the transaction is verified to be valid it's grouped with other transactions that have been proven valid and put inside a block of data. Once the block has reached its storage capabilities it is linked to the previous block creating a chain of data that cannot be edited or destroyed.

 

 Blockchain Decentralisation 

Blockchain uses decentralisations to allow the data held in the database to be shared among multiple network nodes at various locations. This allows the network to maintain the fidelity of the data stored and establish an exact and transparent order of events by preventing a bad actor from altering the data at one instance of the database as the other nodes would not be altered and so could easily cross-reference each other to pinpoint the node with the incorrect data. 
due to this, the history of information such as transactions, legal contracts, state identification or company product inventory is irreversible and unchangeable until updated in the next block of information in the blockchain.
 

Proof of work (POS)

To validate new entries or records to a block, a majority of the decentralised network’s computing power would need to agree to it (usually 51% or more). To prevent bad transactions from being validated or double-spending. blockchains are secured by a consensus mechanism such as Proof-of-Work (POW) or Proof-of-Stake(POS). These mechanisms allow for agreement even when no single node is in charge.

 

Why is Blockchain Secure? 

Blockchain technology achieves decentralised security and trust in several ways.
Every block in the blockchain contains a timestamp, a hash and the hash from the previous block. This means if a block was to be changed at a previous point in the chain, it would not only change the hash of the block that has been altered but every block that follows creating a completely different branch of blocks that would need to be verified by the network using cross-referencing and proof of work. 
 

In other words:
If a hacker runs a node on a blockchain network and alters their single copy in the hopes to steal others assets, it would no longer align with everyone else's copy. When everyone else cross-references their copies against each other, they would see this one copy stand out, and that hacker’s version of the chain would be cast away as illegitimate. 
The only way for this to be possible is if the hacker was to gain control of 51% or more of the copies of the blockchain and alter everyone to match the changes so that the new copy becomes the majority copy and, thus, the agreed-upon chain.
The cost to achieve this would be insurmountable due to the size of many cryptocurrency networks and how fast they are growing and would very likely be a wasted effort as network members would see such drastic alterations to the blockchain and hard fork off to a new version of the chain that has not been affected. This would cause the attacked version of the token to plummet in value, making the attack ultimately pointless.