A chain of blocks that contains information. In 1991, by a group of researchers, this technique was described and was originally intended to timestamp the information (digital documents) so it’s not possible to backdate them or to tamper/change them.
It went by unused until it was used in the creation of ‘Bitcoin’ by Satoshi Nakamoto.
What is Blockchain?
A blockchain is a distributed ledger which is openly available to anyone. (check figure below)
Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.
It has some very interesting property I.e data once recorded in a blockchain is very difficult to be changed.
What are parts of blockchain?
1. Data of the block
2. Hash of the block
3. Hash of previous block
1. Data of the block - The data that is stored in a block depends of the type of blockchain used. For eg. Bitcoin blockchain stores sender, receiver and the amount of coins. A block also has a hash. We can compare a hash with respect to a finger print. It identifies a block and all its contents and is unique.
Once a block is created, its hash is calculated. If something is changed inside a block will cause the hash to change.
2. Hash of present block- Hash can be used to back track the information stored in a block. If the hash changes it is no longer the same block. If you tamper the data of block 2, the hash value would change and the whole blockchain would become invalid. Hence hash of current block (block 2) = hash of previous block (block 3)
3. The Hash of previous block- The third element of a block is hash of the previous block.
What is the Genesis block?
Every block has the hash and the hash of previous block. Referring to the figure 1.1, so block no. 3, points to block no. 2 and no. 2 points to no. 1. The first block cannot point to previous block. Because it’s the first one and that is why it is called the genesis block.
We cannot always rely on Hash as tampering of any block will re-calculate the hash of the entire blockchain (and it can make the blockchain valid again). Hence, we have something called ‘Proof of work’ to come in picture.
What is proof of work?
Proof of work (PoW) is a form of cryptographic proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. Proof of work is a mechanism which slows down the creation of blocks. In bitcoin case, it takes 10 mins to calculate the proof of work and add a new block in the chain. So, every time there is a tampering in the block it takes time to calculate the hash and also to create a block and add it in the same chain. Hence, making this mechanism very difficult to tamper with the block.
Because if you tamper with one block you need to re-calculate the proof of work of each block. Security of block chain comes from two things :- 1. Hashing 2. Proof of work mechanism.
Note: There’s one more way that blockchain can secure themselves and I.e DECENTRALIZATION (P2P)
When someone joins this network, he gets a full copy of the blockchain.
What happens when someone creates a new block?
When a new block is created, it is sent to everyone in the network. Each node then verifies the block to make sure it hasn’t been tampered with. If everything checks out well, then each node adds this block. All the node in this network creates a ‘Consensus’. They agree about which all blocks are valid and which aren’t. Blocks which are tampered will be rejected by other nodes. Hence, to successfully tamper with one block you need to tamper with all the blocks in the blockchain. Redo the proof of work for each block.
Take control of almost 50% of P-2-P network.
Only then, your tampered block will be accepted by everyone in the network
And this is impossible to do. Blockchains are evolving day by day. One of the most recent creations is ‘Smart Contract’. These contracts are simple programs that are stored on a blockchain and are used to automatically exchange coins based on certain conditions.
Advantages of blockchain
What needs to change: Operations often waste effort on duplicate record keeping and third-party validations. Record-keeping systems can be vulnerable to fraud and cyberattacks. Limited transparency can slow data verification. And with the arrival of IoT, transaction volumes have exploded. All of this slows business, drains the bottom line — and means we need a better way. Enters blockchain.
Greater trust With blockchain, as a member of a members-only network, you can rest assured that you are receiving accurate and timely data, and that your confidential blockchain records will be shared only with network members to whom you have specifically granted access.
Greater security Consensus on data accuracy is required from all network members, and all validated transactions are immutable because they are recorded permanently. No one, not even a system administrator, can delete a transaction.
More efficiencies With a distributed ledger that is shared among members of a network, time-wasting record reconciliations are eliminated. And to speed transactions, a set of rules — called a smart contract — can be stored on the blockchain and executed automatically.
Types of Blockchain
Public Blockchain Network: A public blockchain is one that anyone can join and participate in, such as Bitcoin. Drawbacks might include substantial computational power required, little or no privacy for transactions, and weak security. These are important considerations for enterprise use cases of blockchain.
Private blockchain networks: A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network. However, one organization governs the network, controlling who is allowed to participate, execute a consensus protocol and maintain the shared ledger. Depending on the use case, this can significantly boost trust and confidence between participants. A private blockchain can be run behind a corporate firewall and even be hosted on premises.
Hybrid blockchain networks: Businesses who set up a private blockchain will generally set up a permissioned blockchain network. It is important to note that public blockchain networks can also be permissioned. This places restrictions on who is allowed to participate in the network and in what transactions. Participants need to obtain an invitation or permission to join.