Beyond Cryptocurrency: What exactly is Blockchain?
February 08, 2019 13:27
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A beginner’s guide to Blockchain
Arguably one of the biggest tech buzzwords of the past few years, blockchain has been on the tip of everyone’s tongues, especially since the value of Bitcoin skyrocketed in December 2017 to being valued at just below $20,000 per BTC.
Although Bitcoin is one of the most widely known examples of blockchain technology, many people still don’t understand what it is, or how it works.
What is it?
A quick Google search will tell you that it’s a ‘distributed, decentralised public ledger,’ but what does any of that mean?
In short, it means that no online transactions made through the blockchain are at the mercy of anyone hacker. Normally online purchases are handled by one entity, for example when making a bank transfer. The bank will be the ‘middleman’ in the transaction and could potentially manipulate any information it likes. When making a transfer through the blockchain, the transaction is ‘peer to peer’ meaning only the sender and receiver are involved.
How does it work?
But how does it work? When a purchase is made online, for example buying a book from Amazon, all sorts of information is recorded such as the name of the person buying the book, the time the purchase was made, the dollar amount etc. All of this information would be kept by and available to Amazon. With blockchain, the information is recorded onto a ‘block’ without any identifying information other than a digital signature.
Every block is given a unique code called a ‘hash’ which allows it to be differentiated from any other block on the chain. Blocks can store up to 1MB of data, so they are able to store many individual transactions in the one block. The block will also contain the hash of the previous block, which is what makes it a chain.
The key difference with blockchain as a record of transactions is that no single system, entity or person is in charge of verifying that transaction. A network of potentially thousands of computers known as ‘miners’ belonging to other blockchain users verifies that the transaction happened in the way that it did, and then the block is added to the blockchain (which is publically available for all to see)
This decentralisation and shared responsibility are what makes Blockchain so trustworthy. You can be sure that the information within that block is accurate because - in the case of Bitcoin - thousands of computers agreed it to be so. This is known as ‘Proof of Work.’
If a hacker were to tamper with a single block, that block’s hash would change, and would no longer match the next block, ‘breaking’ the chain and making it very clear if any changes have taken place. If the hacker really wanted to permanently alter a block, he would have to modify every single other block in the chain and their hashes; a monumental task in the case of a blockchain as large as Bitcoin.
If a hacker wanted to change something on a single computer, they might not have much trouble doing so, but in order to alter the information of a single block, they would have to take control of more than 50% of the computers that verified it. Much more difficult. Not only that, the computing power required to do so would be so great that it wouldn’t be worth the effort.
All of this adds up to more security and more trust, which is why it’s no surprise that the blockchain is being applied to a vast array of industries and applications, with more examples of it being used every day.
While most uses of blockchain technology seem to be centred around cryptocurrency, some companies are using it to decentralise cloud storage, decentralised online eCommerce and even to share computing power for mining.