Is Blockchain a Rapper?
Nope! Blockchain is a digital data storage system that uses a distributed ledger and validation process that make it more secure than any other data storage systems to date.
Blockchain Background
Blockchain technology was developed around 1991, as it was described to be the first work on cryptographically secure chain blocks. In ’92 an abstract data type called a Merkle tree was integrated into the design which allowed for several documents to be collected into a block.
Blockchain as we know it didn’t gain notoriety until around 2008 when an anonymous person or group called Satoshi Nakamoto (whose identity is shrouded in mystery!) published the Bitcoin White Paper. Nakamoto gave a practical use for blockchain technology and solved the problem of double spending.
At the end of this article, you’ll find a glossary of terms. So feel free to scroll down if you need clarity on any words in italics.
What is Blockchain Exactly?
Blockchain was originally used to timestamp digital documents, so it wouldn’t be possible to backdate or tamper with them. Basically, a blockchain is a digital data storage system; a distributed ledger that is open to everyone.
When I say ‘distributed’, it’s in opposition to ‘centralised’, which means that there isn’t one central place where all the information is being held or monitored. There are many reasons why this is beneficial and makes blockchain so secure, but more on that later.
In a blockchain, each block contains some data, a hash of that block and a hash of the previous block. The data stored in the block depends on the type of blockchain. The Bitcoin blockchain stores a lot of different data, for example transactions between the sender and receiver and the amount of coins being exchanged.
The block ‘hash’ is a number and letter combination that identifies a block and all of its contents — each block’s hash is unique. Once a block is created, its hash is calculated; changing data in the block will change its hash. If a hash changes, it’s no longer the same block. Now, we can start to see how the ‘chain’ of the blockchain is formed because each block also contains the hash of the previous block. This is one factor that ensures the security of the data stored.
Is it Secure?!
If someone wants to change any data in an existing block, this would change the hash of that block. But since the following block also contains that first one’s hash, that means you would have to also change that block’s hash and then you’d have to change the hash of every existing block that comes after the one you are trying to modify!
This might not sound too challenging if you’re thinking about a chain of only a few blocks, but if you consider that, on average, a new block is created every few seconds or few minutes, depending on the blockchain, then you can imagine that this would be an incredibly challenging task.
Distributed vs. Centralised
Besides the hashes, another important security feature of the blockchain is the fact that it’s a distributed ledger and not a centralised one. There is something called a P2P (Peer to Peer) network in place, and when someone joins this network they are given a full copy of the blockchain; this is done to verify that everything remains in order.
If someone creates a new block, the new block is sent to everyone on this P2P network, and each person will check that it hasn’t been tampered with. If everything looks legit, each person will add this block to their chain. The P2P network creates a consensus and they must agree if a block is valid or not. If a block isn’t valid, it’ll be rejected by the network.
So how is this more secure than a centralised ledger? Centralised ledgers are much easier to hack. All of their data is stored in one place, and if their security is compromised, the hacker can alter or delete any of that information. As opposed to a distributed ledger, such as a blockchain, where data is distributed throughout the world with various people monitoring the activities. The security that blockchains provides is the fact that the data you store there cannot be modified or lost.
Blockchain is Kind of a Big Deal
In our banking system, for example, we rely on ‘middlemen’ a lot. These intermediaries establish the trust in our economy, but there are some problems with this, like how we have to pay these intermediaries for their services and they also lengthen the process of sending data from one place to another. So what if we cut out that middleman?!
Have you ever tried to send money abroad, and it takes a few days. The money gets there, and you realise a large chunk of what you sent has ‘disappeared’, because the banks and their intermediaries have taken a portion of the money you were sending, to pay for their services. Ugh. Annoying!
Well the blockchain would be a way of removing this ‘Middleman’. We often rely on these middlemen when dealing with banks, governments and credit card companies to establish trust in our economy, but these intermediaries have some serious drawbacks, and blockchain has the solution.
As mentioned above, these intermediaries are centralised, so they can be more easily hacked. Also, they’re excluding billions of people from the economy, just because they’re unable to afford bank accounts. Another example of the problems with these middlemen is the fact that they take money for their services, and although this may seem negligible for smaller transactions, this payment over time adds up to quite a lot. Finally, these middlemen slow everything down — it can take days or weeks to transfer money, depending on where the money is coming from or where it’s going to.
In the case of bitcoin, it’s traded on a blockchain, and cuts out the middleman. Bitcoin is a cryptocurrency that goes up and down in value, like all other assets. When someone makes a transaction, that information is sent through the P2P network world wide, and the funds are sent in less than a day from sender to receiver. This creates a system in which, for the first time, people can trust each other and transact.
Blockchain Isn’t Just for Invisible Coins!
First of all, there isn’t only one blockchain, there are many! And each can store different kinds of data. Some proposed ideas for the different ways we could use blockchains include a storage system for medical records, a system for e-notaries or even the potential to use it for voting in federal elections.
The blockchain is changing the way that we store our data. The idea is that by using the blockchain we are actually giving people’s data back to the people, rather than giving up all our information to these intermediaries everytime we need to make a transaction. It will allow people to only give up the information they want to, instead of having these centralised intermediaries holding onto all their information.
It will certainly be interesting to see the new blockchains being developed and to see what other uses this data storage system will be used for.
Glossary:
Bitcoin — a cryptocurrency, as opposed to a Fiat currency which is established by a centralised government
Bitcoin white paper — An official document that explains, step by step, how bitcoin works and what it is.
Double spending — when a given amount of currency is spent in more than one transaction
Merkle Tree — a similar concept of the hash, where each ‘leaf’ is labelled with a hash of a data block, and every ‘non-leaf’ node is labelled with the hash based on the labels of it’s ‘children’ nodes.
P2P — Peer to Peer is a network architecture, as opposed to a Client-Server architecture. Every node in the network is a peer and has the same role and privileges.
Sources:
- Who Invented Blockchain Technology?https://www.techbullion.com/invented-blockchain-technology/
- How does Blockchain Work? — Simply Explained. https://www.youtube.com/watch?v=SSo_EIwHSd4
- How the Blockchain is Changing Money and Business. https://www.youtube.com/watch?v=Pl8OlkkwRpc
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About the Author
Sona Kerim is a Digital Marketing Specialist at EL Passion. You can find her on LinkedIn.
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