Unlocking The Crypto Puzzle: Part 1- The Blockchain
(Unlocking The Crypto Puzzle is an ongoing series of articles to help demystify cryptocurrency for everyone.)
The Blockchain — What Is It?
In its simplest form, a blockchain is a public record of every transaction that has taken place. It is similar to a ledger of financial transactions that a bank would keep. The difference is the banks ledger is centralized — it is kept in one location and is usually not available to the public, or to other banks and suppliers with whom it does business.
Blockchain is de-centralized, which means it is distributed across many computers, with each computer having a matching version of the ledger. This is why some people call blockchain a distributed ledger. It is also publicly available, so that everyone can see the transactions, but private so that no personal information is shared.
Each piece of the blockchain cannot be tampered with or changed once it is created. This makes bitcoin transactions completely secure and safer than traditional methods of record keeping.
We call each individual record a block. This forever-growing list of blocks are permanently linked, or chained, using a complex code called cryptography. Think of it as information hidden in code. Each of these blocks contains coded (crypto) information that tells 3 things –
1) what block came before it;
2) the time and date of the creation of the block; and
3) the actual data, or information, that is being saved.
By stating in each new block which block came before it, it prevents tampering. And a cryptographic reference to the previous block is a part of the mathematical puzzle that needs to be solved in order to bring the following block into the network and the chain.
When it’s created, each block of the blockchain is protected by a cryptographic code. In order for a new block to become a part of the blockchain, it must pass a series of tests run by the network of computers that store the blockchain. These computers are called Miners — as in mining for gold — and they must solve a series of complex algorithmic puzzles to verify that the data being stored is correct and accurate. By having multiple random Miners on the network verify the accuracy of the transaction, the network polices the blockchain and prevents misuse. The Miners are willing to spend time, effort and money solving these puzzles because they are rewarded with cryptocurrency if they are successful.
Part of solving the puzzle involves working out a random number which is called the “nonce.” The nonce, or number, must be combined with other data such as the transaction size. This creates a unique digital fingerprint that is called a hash. And then the entire information packet is encrypted, making it secure.
Because of the variety of information included in each block and puzzle, each hash is unique. Once the correct number of individual Miners have solved the puzzles, a block is considered completed and added to the chain. And here is the beauty of a blockchain. It is impossible to tamper with. In order to change an individual block, each earlier block, which number over a million, would have to be re-mined.
That means that the blockchain is impossible to hack.
