Blockchain Technology and Its Functionality — Part One
A blockchain is a distributed ledger that can record transactions or any other information in a chain of continuously growing blocks. Through using a cryptographic mechanism which is called hashing. These blocks and all the data recorded in it, when created, would be immutable. It means that once any information is recorded in the system, they can never be deleted or changed ( possible but not probable). This key innovative part makes blockchain a great solution in any situation where recording data needs to be traceable, transparent and performed by untrusted members of a network.
The blockchain technology has made it possible for a digital and decentralized currency to become operational. Far more than being just an underlying technology of a cryptocurrency, blockchain technology is going to be as revolutionary as the historical inventions such as steam or combustion engine. This technology can revolutionize the digital world; using the ‘distributed consensus’ feature for each old or new online transaction, it can process transactions that allow digital assets to be identified in the future.
And this is all possible without any risk against one’s privacy, in a secure environment for the digital assets in all sides of the transaction. By eliminating the traditional trusted third party, online financial transactions have become the monopoly of a few corporations, leading to an unnecessary increase in transactions fees.
Using cryptography, digital signatures, and subsequent verification by other participants (known as miners) in the network, blockchain does not rely on any central node or the third party in a transaction process. Every transaction is secured by a digital signature. Each transaction is digitally signed by the sender’s private key before being sent to the receiver’s address. To be able to spend any amount of money, the owner of the money needs to prove that they own the private key. By using the public key of the sender, a miner identifies the digital signature (ownership of the private key) and if correct, confirms it (the miner runs some other checks and marks the transaction as valid).
Each transaction is then broadcasted across the network by a node and after identification, it is recorded in the ‘distributed ledger’. Before it’s being recorded in the ‘distributed ledger’, every single transaction must be identified and validated. In advance of any transaction, the identifying nodes must make sure of two things:
— The sender has a validated digital signature for unlocking the transaction.
- The sender owns enough currency in their address. All transactions of the sender’s address(public key) must be controlled in the distributed ledger so that sufficiency of the account’s holding gets validated.
Figure 1
Here an issue is raised: keeping the order of transactions that are broadcasted to other nodes in a blockchain’s peer-to-peer network (like Bitcoin). The transactions are not necessarily processed in the order in which they are created, thus the system has to contrive a way to prevent double spending. To achieve this, transactions must be transferred node by node along with the network. Note that there is no guarantee that the order of receiving the transactions by nodes corresponds with the order of their creation.
