Basics of Blockchain
A couple of years ago, I listened to my partner telling me stories about blockchain, crypto, and web3 when we were sharing highlights of our day. I could see how excited he gets whenever he has news of the things happening in space, but I never understood it because I lacked the fundamentals. I had bits and pieces of information, but I could not paint a meaningful picture with it.
Recently, I gained more interest in learning to understand the blockchain space, cryptocurrency, web3, and all the jargon. Upon further reading, I understood that Blockchain is the fundamental technology powering all the new buzzwords — Defi, NFTs, digital currency, metaverse, etc. Also, a blockchain is simply a ledger book with a list of records organised in a way that makes it easy to detect changes and improve the integrity of the records.
The Building Blocks of Blockchain
Accountants record financial transactions in a ledger book or an excel sheet with several data points. Typically, we would start entering records on the first page. And once it is complete, we flip to the next page, and in that manner. This analogy is akin to the way blockchain organises data. Consider each page in the ledger book as a block. Thus, a block contains a list of records. The first block in the blockchain is called the Genesis Block.
Once the Genesis Block (herein and after Block 1) is successfully added to the blockchain, a unique (or hash) code for the block’s content is computed using cryptography, a term called hashing. This hash code is referenced on the second page (or, in blockchain terms, the second block, which we shall call Block 2 ) to act as a pointer or reference to the previous block. A unique hash of block 2 is also computed and referenced in the third block (3), leading to a chain of blocks. This sequence of organising contents is what is known as a blockchain.
This organisation ensures that when someone with malicious intent changes a record in, say, block 2, the hash code of 2, which has been saved in block 3, will be different. This is how we would identify that the content of block 2 has been altered or changed –leading to data integrity. You can appreciate how valuable a blockchain would be for public voting, ensuring that once a user has cast their vote, sent, saved to the blockchain, no one can modify their votes because of the unique hash code.
Public and Private Blockchain
Now, blockchains can be private or public. A private blockchain means that only a few people with the right access can save transactions to the blockchain network. For example, an institution may decide to keep its data on a private blockchain and grant access to some selected departments or staff members. Common examples of private blockchains are the ones built using Hyperledger.
On the other hand, if a blockchain is public, everyone can access it. For example, the Bitcoin blockchain. The beauty of the public blockchain ledger is its transparency and how decentralised it has grown. Everyone can see what is happening on the Bitcoin network by visiting this explorer website.
More on Decentralisation
Until now, I have described the blockchain network as though it is running on one computer. The truth is that several hundred thousands and millions of people are running the same blockchain on millions of servers (at least the Bitcoin network). The beauty is that each node/server is sharing/using the same data we have spoken about. Because many people are running the blockchain network, it creates something we call decentralisation.
One major advantage of having a decentralised ledger is the difficulty in manipulating records on the blockchain. Referencing the example we used above, if someone were to change a record in block 2 maliciously, they would now have to do it across millions of servers to be able to hack the network. And as you have guessed, it would be very hard to achieve that.
Now compare it to a centralised server, like e-commerce or a banking platform, where one person (the administrator) can easily change records in their database and get away with it.
My Takeaways
Blockchain is a novel technology and may be applicable to situations where the integrity of the data is of utmost importance. Additionally, in scenarios where decentralisation may yield a better outcome than centralisation, a blockchain may be an ideal technology.
