Blockchain 101 for Beginners

Author: Ncrypted#2381

It’s alright to be this guy in the image above here. Although blockchain has been revolutionizing the way data is being stored and sent, not everyone has been educated on what blockchain really is. Fret not, this article here has been prepared for those that are interested in learning more about blockchain but have never put much thought to it.

What is Blockchain:

A blockchain is a digital ledger of transactions that is distributed among many nodes, or computers, and maintained by a peer-to-peer network. It works by linking sets of data (called "blocks") together into a chain. Copies of this chain are transmitted continuously to all members of the network. In simpler terms, Blockchain can be defined as a chain of blocks that contains information. This protocol is intended to timestamp digital documents so that it’s not possible to backdate them or temper them. The purpose of blockchain is to solve the double records problem without the need for a central server.

Blockchain is used for the secure transfer of items like money, property, contracts, etc, without requiring a third-party intermediary like a bank or government. Once data is recorded inside a blockchain, it is very difficult to change it.

For Example, A Bitcoin Block contains information about the Sender, Receiver, number of bitcoins to be transferred. The first block in the chain is called the Genesis block. Each new block in the chain is linked to the previous block.

Understanding SHA256 – Hash

A block also has a hash. A hash can be understood as a fingerprint which is unique to each block. It identifies a block and all of its contents, and it’s always unique, just like a fingerprint. So once a block is created, any change inside the block will cause the hash to change.

Each Block has

Data
Hash
Hash of the previous block

Hence, all blocks are contain hashes of previous blocks. This is the technique that makes a blockchain so secure. Even if a hacker was able to change the hash on one block, all succeeding blocks would become invalid as they do not have the correct hash of the previous block.

Proof of Work

Hashes are a great mechanism to prevent tempering, but computers these days are high-speed and can calculate hundreds of thousands of hashes per second. In a matter of a few minutes, an attacker can tamper with a block, and then recalculate all the hashes of other blocks to make the blockchain valid again.

To avoid the issue, blockchains use the concept of Proof-of-Work. It is a mechanism which slows down the creation of the new blocks.

A proof-of-work is a computational problem that takes certain to effort to solve. But the time required to verify the results of the computational problem is very less compared to the effort it takes to solve the computational problem itself.

This kind of mechanism makes it quite tough to tamper with the blocks so even if you tamper with even a single block, you will need to recalculate the proof-of-work for all the following blocks. Thus, hashing and proof-of-work mechanisms make a blockchain secure.

Distributed P2P Network

However, there is another method which is used by blockchains to secure themselves, and that’s by being distributed. Instead of using a central entity to manage the chain, Blockchains use a distributed peer-peer network, and everyone is allowed to join. When someone enters this network, he will get the full copy of the blockchain. Each computer is called a node. When any user creates a new block, this new block is sent to all the users on the network. Each node needs to verify the block to make sure that it hasn’t been altered. After complete checking, each node adds this block to their blockchain. All these nodes in this network create a consensus. They agree about what blocks are valid and which are not. Nodes in the network will reject blocks that are tampered with.

In this example, each computer (or node) has access to its own copy of the database as opposed to many nodes having access to just one database.

Blockchain process: how transactions work.

A transaction is made: One party signs a transaction with their keys using wallet software. The transaction is broadcast to the network or directly to the recipient's wallet which will ask validating nodes to verify the transaction. If the network operators do not see an attempt at fraud, the recipient will see an updated balance in their wallet. That new state of the ledger will be recorded in the next block. These processes occur almost instantly.
Transaction data is logged and compiled into a block: The data recorded includes time, date, sending and receiving addresses, the amount of spent bitcoins, and an encrypted hash of the individual's digital signature.
The finished block is distributed to every node in the network: Due to its decentralized nature, the finalized block is distributed throughout the network for verification from the other operators of the network, who must come to consensus on the state of the ledger.
All operators run “Nodes” in the network which work to verify the block: Network nodes run software which does computational cycles of work toward solving complex math problems required to verify the current block. Once a node solves the block, they are awarded the fees and the predetermined new coins, and the other nodes immediately begin working on the next available block to avoid duplicates.
After verification, the block is added to the chain: The completed block receives a unique timestamp and identifying code called a "hash." The block also records the hash of the previous block, creating the immutable quality and orderliness of the blockchain.
The transaction is complete and becomes part of the ledger: The updates on the blockchain are shared with members of the network. The integrity of the ledger is confirmed by the matching hashes.

Examples of blockchain:

Blockchain is now being used many industries and areas of life. Below are some use cases directly from Forbe’s website.

Food industry — The food industry’s complex network from farmers to grocers makes tracking down food-borne illnesses challenging. Blockchain can improve the transparency and efficiency of finding out what food might be contaminated and where throughout the supply chain.
Provenance — Consumers are increasingly demanding transparency regarding the products they purchase and consume to ensure the sourcing of materials and production of products adheres to their individual values. Provenance uses blockchain to provide chain-of-custody and certification of supply chains.
Proof of insurance — Nationwide insurance company is currently testing a blockchain solution to provide proof-of-insurance information called RiskBlock. Ultimately, when this tool is fully deployed it will help law enforcement, insured and insurers verify insurance coverage in real time and accelerate claims processing.
MedicalChain — The first healthcare company using blockchain technology to facilitate the storage and utilization of electronic health records in order to deliver a complete telemedicine experience. They are real practicing doctors in the UK healthcare structure and want to change the system from within.
BitProperty — Using blockchain and smart contracts, BitProperty wants to democratize opportunity and create a decentralized society by allowing anyone anywhere in the world (except the U.S. and Japan due to regulatory concerns) to invest in real estate.
BitGive —This global donation platform leverages Bitcoin and blockchain technology to provide greater transparency to donors by sharing real-time financial and project information. Save the Children, The Water Project and Medic Mobile are a few of the charities working with BitGive.