What is blockchain?
It’s impossible to talk about ethereum, NFTs and cryptoart without mentioning blockchain. At a first glance it might seem like a distant concept but we’re here to help you understand how it works behind the scenes.
What is Blockchain
Blockchain is a data validation system that works by grouping information in blocks, chronologically, and spreading them through a decentralized network.
All these words certainly form a sentence, but at first glance they seem to describe a completely abstract and out-of-reach concept.
In general terms, we can say that blockchain is like a ledger in which transactions can be recorded, authenticated and verified when necessary. What separates it from common solutions, such as civil registries, is the fact that it doesn’t belong to any authority or institution. Meaning that no central server controls all the information.
So, who stores all this data?
Every participant in the network has a copy of this ledger and every transaction is announced for everyone to write it down in their own version.
Once the ledgers are filled in, we need to choose which of the versions to include in the sequence of completed books. This is done through a proof-of-work system, that analyzes who put the most energy into securing the information.
The result of this proof-of-work is a unique code, generated based on the information contained in the ledger. This code is then assigned to each closed ledger — a block — and repeated at the beginning of the next, forming a sort of chain, which makes it impossible to change the sequence of completed blocks.
All transactions made on the network in question are recorded in this chain of ledgers — hence the name blockchain. You don’t need to participate in recording and proofing the data in order to use the technology, that is the work of miners. As a user, you have access to blocks for verification as they enter the chain.
But if there are millions of copies, each one being updated by a different person based on an announcement coming from an unknown source, then how can we say that this is the most secure way of authenticating transactions?
How it works
Blockchain is a type of Distributed Ledger Technology, plus cryptography. DLTs are decentralized systems of data recording, meaning their information is not kept in a single location, such as servers.
Although the terms are commonly used interchangeably, not every DLT is a blockchain. But every blockchain is a DLT.
The advantage of using such a system is the guarantee that no single institution or authority has full control of the data, making censorship or manipulation practically impossible.
Cryptography is used to make sure the information announced through the network is reliable.
Just like in normal banks, we need some form of identification in order to process a transaction. In the case of blockchain, we use two different, but related, keys: a private and a public key.
When you send currency to a different account — or wallet as they are usually called — a signature is added to the end of it to prove its authenticity. The transaction information plus your private key are used to create that signature through cryptography, which is then used to prove that the transaction came from you, without you ever needing to share your private key by itself. As the signature is based on the contents of the transaction, it’s not possible to use it twice, avoiding frauds. Your public key, on the other hand, works as an address to your wallet.
Blockchain is based on the principle that nothing and no one is trustworthy and therefore makes use of mathematical problems to ensure the veracity of the information transmitted.
At the end of each block, all the transaction information contained in it plus a number x — nonce — are transformed into a line of “random” characters of 256 bits, or 32 bytes. This translation into code is done using a hash function, more specifically SHA-256.
The security in cryptography comes from the fact that SHA-256 is a one-way function:
Running the phrase “Empowering artists through technology” through SHA-256 we get the hash value of ccf5e6bb4cc0373f612a1e4ef6b6cf475bf6951c9dc0f24289de5cf222be2708.
Having this hash value and knowing the function used, doesn’t mean you can figure out the original message. It’s impossible to reverse the operation.
We say that the result is close to, but not entirely, random because the same message will always return the same hash value, but if we change a single character the value we receive is completely different:
“Empowering artists through technology” = ccf5e6bb4cc0373f612a1e4ef6b6cf475bf6951c9dc0f24289de5cf222be2708
“empowering artists through technology” = 4b20bd4ae97a668095995e81cade115b802dba88d5932e263c1acd69907a29c4
When starting a new block, the hash value of the previous one is added to the top, making it impossible to change information inside closed blocks. As we demonstrated above, the slightest change to the original message completely changes the encryption result. Due to the fact that blocks are “chained” together by these codes, it’s also impossible to change their order as it would lead to conflicting information.
For a block to be validated and become part of the chain, the hash value must fulfill a predetermined condition, such as starting with a sequence of 15 zeros. It is at this point that we need the computational capacity of several computers calculating the nonce — value x added at the end of the block — that generates a hash value that satisfies the asked condition. The computer that comes up with that answer first has its block established on the chain and receives a reward for its proof-of-work. This is called mining.
Large platforms, such as Ethereum, have moved to replace proof-of-work with proof-of-state, an alternative that promises to drastically reduce energy consumption and make the process more accessible and consequently more decentralized.
Everything we’ve talked about so far happens between miners, what the end user sees are the validated blocks in the established chain.
Once a block enters the chain it becomes permanent. It’s not possible to rearrange, delete or change your information. This permanence is what guarantees the security of the system. You, as a user, have full access to the entire chain history in case you need to check any transaction made through it.
Understanding blockchain might seem like a difficult task, but we hope to have helped shed some light on how the technology works.
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