How does a blockchain work – Simply Explained Block chains are incredibly popular nowadays, but what is a block chain? How do they work? What problems do they solve and how can they be used? Like the name indicates a block chain is a chain of blocks that contains information.
This technique was originally described in 1991 by a group of researchers and was originally intended to timestamped 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 Doce Nakamoto in 2009 to create a digital cryptocurrency Bitcoin, now a block chain as a distributed ledger that is completely open to anyone. They have an interesting property.
Once some data has been recorded inside the block chain, 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.
1. How does a blockchain work – Simply Explained
How does a blockchain work – Simply Explained The data that is stored inside a block depends on the type of block chain, the Bitcoin block chain, 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 contents, and it’s always unique, just as a fingerprint.
Once the block is created. it’s 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 the block chain so secure. Let’s take an example here. We have a chain of three books. As you can see, each block has hash and the hash of the previous block.
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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 while 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 the following blocks invalid because they no longer store a valid hash of the previous block.
2. How does a blockchain work – Simply Explained
So changing a single block will make all the 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 block chain valid again. So to mitigate this, blockades have something that is 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 the chain.
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This mechanism makes it very hard to tamper with the box, because if you tamper with one block, you’ll need to recalculate the proof of work for all the following blocks. So the security of a block chain comes from its creative use of harshing and the proof of work mechanism, but there is one more way that block chain security themselves, and that is by being distributed, instead of using a central entity to manage chain block chains, use a peer-to-peer network and everyone is allowed to join. When someone joins this network, he gets a full copy of the block chain.
3. How does a blockchain work – Simply Explained
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 sent to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. And if everything checks out, each node adds this block to their own block chain. All the notes in this network create consensus.
They agree about what blocks are valid and which aren’t. Blocks that are tampered with will be rejected by other nodes in the network. So to successfully tamper with a block chain, you’ll need to tamper with all the blocks on the chain, redo the proof of work for each block, and take control of more than 50 percent of the peer to peer network. Only then will your tempered block become accepted by everyone else. So this is almost impossible to do. Block chains are also constantly evolving.
One of the most recent developments is the creation of smart contracts. These contracts are simple programs that are stored on the block chain and can be used to automatically exchange coins based on certain conditions. More on smart contracts in a later video. The creation of block chain technology peaked a lot of people’s interest soon, others realized that this technology could be used for other things like storing medical records, creating a digital notary or even collecting taxes.