The ‘Blockchain’ is a peer-to-peer network that has a public record of transactions and it’s not controlled by any centralized authority, meaning that it’s totally decentralized. Many people think ‘Satoshi Nakamoto’, the inventor of Bitcoin created the blockchain but something similar existed already.
The ‘blockchain’ isn’t even mentioned in the Bitcoin whitepaper and it’s entirely based on cryptography. It was in 1991, when Stuart Haber and W. Scott Stornetta tried to timestamp documents using cryptography that the Blockchain was invented. They did run into a few problems that were later solved by Satoshi using a PoW system, we will talk about that later on.
How it works
The blockchain works really well because it keeps a public record of all transactions, imagine it like giving the same document to 10,000 people. Whenever someone makes a transaction, he has to broadcast it to everyone else, if he tries to send more than what he currently owns, the other users will know by comparing it to their documents. A transaction will only go through if the majority of users agree. This makes it almost immune to attacks because in order to take control of the network, an attacker would need to control at least 51% of the entire network of users, something that is clearly very hard, close to impossible.
Hashing
You might be wondering how does the blockchain network make sure that the documents sent are not being modified. The solution to this problem is called ‘Hashing’ which is the process that takes an input value and then creates an output value that is always the same size, hash functions are also irreversible. For example, let’s say we are using a hashing function called, ex1. If we hash the word, ‘hello’ using the hashing function ex1, it would look like this:
ex1(‘hello’) = 5eb415eebcd31eb456514bebeb331eeb
The hashed text is marked with blue and has 32 characters exactly. Let’s now hash the word ‘hello 1’.
ex1(‘hello 1’) = 315bebb331d4bebecc3967eee7c697eb
You can probably notice that although, the word hello and hello 1 are really similar, the output hash value is extremely different and that’s the beauty of hash functions.
Why are hashes irreversible?
Hashes are irreversible, meaning that you cannot determine the input value from the hash alone, it’s a one-way process. Hash functions use something called the ‘modulo operator’. A quick example of a modulo operator would be:
21 mod 5 = 1
What we are doing here is dividing 21 by 5 but the result is whatever it’s left of the operation: 21/5 = 4 because 4 x 5 = 20 and then 21–20 = 1. Another example:
31 mod 6 = 1
As you can see, the result is actually the same, because 31/6 would be 30 + 1. This is the beauty of these operations, you can get the same result using an infinite amount of input values, there is no way to determine what the input value was based only on the outpùt value, that’s why hashes are irreversible.
Proof of Work
This concept was introduced before Bitcoin was created, however, Satoshi was the first to actually apply this system to a digital currency revolutionizing the industry. PoW is what allows the currency to be trustless. You don’t need to trust a third party because everyone has a copy of the ledger, also called the blockchain. Anyone can verify if the transaction is accurate by looking at the public blockchain. Users, also called miners, need to perform very complex calculations in order to create a group of transactions (a block).
Transactions are sent together into a block and ‘miners’ verify each transaction, once they solve the mathematical ‘puzzle’ a reward is given to the miner who solved it and the transactions are then stored on the public blockchain. But how do miners announce the solution to the public without actually revealing it? They hash it, for example, let’s say that everyone knows the answer when hashed is 5eb415eebcd31eb456514bebeb331eeb but no one knows yet what the real answer is. Mark for example can check whether he found the right answer by hashing it and comparing it to the hashed answer.
Applications for the Blockchain Technology
Most people know about the Blockchain because of Bitcoin and other cryptocurrencies, however, the uses for the blockchain go beyond currency. The decentralized nature of the blockchain has many real world applications.
Supply Chain Tracking
Using the blockchain technology, companies can easily track all the details of a shipment like location, time and even the temperature. The difference between using the blockchain and traditional methods of tracking is the immutable nature of the blockchain, it’s almost impossible to tamper with the details once they are recorded on the blockchain, something that cannot be said about traditional methods.
Smart Contracts
Smart contracts are in a way like normal contracts, however, they don’t need a central authority or third party to work. Smart contracts only depend on the initial requirements both parties agree on, the smart contract will then automatically send the payment only when the requirements are met.
Digital ID’s
Identity theft is quite common and very difficult to solve using the traditional methods. The blockchain technology can solve this issue because of its decentralized nature and immutability. Once your ID is created and sent to the blockchain, it will stay there forever. Furthermore other users can easily verify it if needed.
DApps
Decentralized application, also known as DApp is one of the well-known blockchain usecases. It is a compluter application runs on blockchain system. DApps are the great examples of applying blockchain into real-world business. There are diverse kinds of DApps, which varies from games to social network.
CONCLUSION
The blockchain technology is clearly trying to revolutionize the world, it is still fairly new technology and we don’t fully know the full extent of the applications it can create. Big businesses and companies have noticed this and they are investing a lot of money into the technology. Facebook in fact is trying to come up with a cryptocurrency of their own. Financial sectors also seem to be really interested and they are also not only investing but coming up with their own applications for the technology.
A future without centralized authorities might be close.
