What is Blockchain? What Makes It Special?

Published in

COMPFEST

6 min readApr 24, 2020

In recent years, the term “Blockchain” often appears in various media, especially among technology enthusiasts. Blockchain is being considered to have a prodigious impact on various industries. However, maybe some of you still do not get any idea about what the meaning of blockchain is, or maybe you have never even heard about it before. So, let’s discuss it!

Let’s read the following short story to understand what blockchain is.
For example, there are 4 friends named Jane, Lisa, Kevin, and David. All of them know about the amount of money that each person has. They also agree to write every transaction on a piece of paper. Each of them also has an empty folder that will be filled with the papers that record all transactions. So, everybody has the same copy of data transactions.

One day, Jane wants to send some money to Lisa. So, she tells her friends and everyone would check whether her money is enough to make the transaction. If her money is enough, everyone would approve the transaction and write the data on their paper.

After they write the data, they also have to stamp the paper. The stamp contains a unique code. After it is stamped, they would put the paper into the folder. When the paper is already stored in the folder, it cannot be modified anymore.

The next day, Kevin wants to send some money to Jane. All of them do the same procedure just like yesterday. However, there is one additional thing that they have to do. They not only give a new stamp to the paper, but they also have to include the stamp from the previous paper.

The transactions keep going on and they keep following the procedure. Every transaction needs approval and every paper contains 2 stamps, its own stamp, and the previous paper’s stamp. It means that every paper is linked to the previous one.

This is an illustration of the data transactions that are written. All of these papers are stored in a folder. Each person has the same copy.

The story above illustrates the blockchain analogy. A block is like a paper that contains data and a blockchain is like a folder that stores all papers.

Each person who is connected to the network can see all the data, and they also have a copy of it. And every time you want to add new data, it requires the approval of all members.

This is just a simple analogy for blockchain. In real life, blockchain involves a large network, and the data is not limited to data transactions, it can store any kind of data.

So, what is blockchain?

Blockchain is a technology to store data, where the data are distributed to many computers(nodes). Every node has a copy of the blockchain.

Just like the name, the data is stored in a block which are linked to each other. Each block contains data, its hash(unique code), and the previous hash. So, every block is linked to the previous block.

What are the key features of Blockchain?

Blockchain is a decentralized system

It means the control of the system is not centralized on a single authority. Blockchain uses Peer to Peer(P2P) network, so the data is not only stored in one place, but it is distributed to all nodes in that network. Everyone in the P2P network has a copy of the data and plays a role in every change of data. In a P2P network, all users can interact directly without the help of a third party.

If there is data loss, it is virtually impossible for said data to be unrecoverable. It is because the data is contained in every computer that participates in the chain.

Blockchain is immutable

It means the data on the blockchain can't be altered. Data in the blockchain could only be appended. Each block of a blockchain contains information and has a hash (unique code) that identifies itself.

What is hash?

Hash is just like a fingerprint. It is created from the hash function. Hash function is a function that converts input value into an encrypted output of a fixed length.

Once a block is created, a hash is calculated. A hash is very sensitive, changing any data inside the block causes the hash to change. So a hash also indicates the changes to a block. It will give a domino effect since every block includes the previous hash. It affects every block and the chain will be declared invalid.

There is a Consensus Protocol in Blockchain

Essentially, the consensus protocol is a protocol where everyone will check the validity of data in the blockchain and make an agreement on whether or not a new block should be added. Everyone must make sure that the new block that will be added is the only version and all the data is valid.

The consensus algorithm is what determines the validity of the transactions and the blocks. It is also often referred to as "Proof of Work".

How does Blockchain work in real life?

Let’s take a look at this illustration!

Source: https://progresif.com/how-blockchain-will-revolutionise-our-lives/

What are the benefits of blockchain?

Better Transparency

Blockchain is just like a distributed ledger. Data in a blockchain also can't be removed, it can only be added. Adding a new transaction record requires the compromise of the entire network. So, any changes on a blockchain can be seen by everyone in the network. Thus, data on a blockchain is more consistent, accurate, and transparent.

More Secure

Because blockchain is immutable and every block has its own hash, these make blockchain more secure and harder to be hacked. Blockchain is also distributed in many nodes. If the hacker tries to change any data, then that person must change the data in other nodes, which is very difficult and highly improbable, but not impossible.

Improve Efficiency and Reduce Cost

Transactions are completely direct, without an intermediary. It will make transactions more efficient. Also, people do not have to pay fees or commissions because there is no third party acting as a middle man.

Blockchain’s Impacts on Various Industries

source: https://themoneymongers.com/blockchain-usecases/

The future of blockchain is coming. Blockchain will change the way people manage transactions, and it will affect banks and other financial industry. Blockchain with its character that removes intermediaries initially may be a threat to banks. However, in its journey, the presence of blockchain has opened up opportunities for banks.

Now, there are so many banks and other financial services that have explored the benefits of blockchain. Several of them are HSBC, UBS, Santander Bank, OCBC, and many others. It’s because blockchain can reduce costs and improve efficiency in operations.

Not only in the financial sector, but blockchain also can be applied to the medical field. In the medical field, blockchain can be used for recording the patient’s data. With blockchain, data will be immutable and every trace can be tracked. Blockchain also can improve efficiency in collecting data, increase universal access, improve the process of medical research, and ensure the transparency of patient’s data management.

As a matter of fact, blockchain’s implementation potential is much more than this. Blockchain can also be used for other things like media, real estate, supply chain, voting mechanism, insurance, Internet of Things, e-commerce, and many others.

Things we need to know is that blockchain involves a large network and it requires trust in its process. Applications of blockchain in various industries are expected to increase business efficiency and support more transparent environments.

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