Hello everyone,

At this point, I will assume that you have a little knowledge of blockchain’s core consensus mechanisms based on my previous posts (Proof of Work - [Part 1][Part 2] and Proof of Stake - [Part 1][Part 2]). In this post, I will demonstrate what blockchain is in general, its importance and characteristics.

It will be a very long, boring but valuable post. Please bear with me.

A unit to store data and information on the the blockchain is called block. All the information and data will be packed into a box which will be encrypted by algorithm. Once it is encrypted, data cannot be changed any more. It becomes an immutable and permanent proof. The created blocks will be linked together as a chain. That's where the name blockchain comes from - a chain of encrypted blocks linked together.

Ledger is used to record all transactions occurred between individuals, between organizations or between individuals and organizations. Over the course of history, ledger has been improved to match with the development of society.

Ledger which will illustrate below as an example is the most commonly used one nowadays. I will take an example in banking industry so that it will be easier to follow:

• When customer opens a bank account, they start depositing money and making transactions. All of these transactions will be recorded in bank's ledger. In fact, ledger of that bank is a system of servers which will store all bank's data.

• This system is very complicated and costly. Banks spend much money to be able to protect this system not only from network attacks such as stealing or changing customers' information and money but also from many catastrophe risks such as earthquake, fire or flood.

This server system is, in-fact, a system of many computers sending data to a central authority called a main server. If a main server goes down, other computers in the network will be affected. As a consequence, data will be lost.

Indeed, there are many big attacks to major banks in the world and cause the lost of billions of dollars.

With blockchain technology, each computer from all over the world participating in the blockchain network (through mining or staking) will keep a copy of a ledger. If hacker attacks to one of computer, data will not be lost because it is still stored in other computers/nodes. And attacked computer can also recover data easily by copying ledger from other computers/nodes.

And if there is a disaster that causes the one computer/node to go down and lose all the data, other different parts of the world can still recover it easily.

Blockchain works based on Peer-to-peer mechanism. In the peer to peer network, each computer send and receive data directly without relying on main server. Each computer which participates in the network is called as a node and each node has equal function and equal authority. One node will be considered as one main server. The more nodes network has, the more secure and decentralized it becomes.

This characteristic makes blockchain become a technology of transparency. Let's explore an example so that we can understand this decentralized consensus:

• Imagine that Alex (A) transfers money to Bob (B). On the transaction processing, one hacker attacks to the network and transfer money to himself/herself instead of transferring to B. However, this hacker's transaction is not be validated by other nodes through verification step (if you do not know this step, please read previous posts here and here). Therefore, this transaction is illegal and will be discarded.

• Only if information that A transfers money to B is recognized and validated by all of nodes in the network, it will be encrypted into a block and this block will be attached to the chain. Once it is attached to the chain, information in that block cannot be change and will be there forever.

However, this decentralized consensus mechanism also has a drawback. That's where a 51% attack happens. It is known as majority attack. Since the final decision is based on majority mechanism, if a hacker can get up to 51% of number of nodes, he/she will manipulate the whole system and force the remaining 49% to agree.

However, this majority attack will not likely to happen because owning 51% of a large system takes a lot of effort and money. For example, right now, no-one can own more than 51% of Bitcoin's miners/nodes. Another important thing is that blockchain is valuable because of its distributed and decentralized nature which makes the network secure and reliable. If it loses its nature because of 51% of attack, network value will be evaporated. So if you want network to have increasing value over time so that you can benefit from that in the long term, you have to be honest.

As you can see from the Figure 6, each block includes hash value of transactions, transaction information, timestamp when transaction happened and hash value of previous block.

Each blockchain will attach more different information to the block depending on their own mechanism. And these blocks will be linked together as a chain.

If a hacker wants to change the contents of a block (such as change the receiving address), hash value of that block will be changed. As a result, the changed hash is different from the hash value of the following block because the following block have the hash of the previous one. The changed hash becomes invalid and the string breaks there. In order for the chain to be valid again, the hacker must change that hash on the next post block and so on until the end of all blocks. This attempt is much time and money consuming.

Let's consider the case where computer technology develops very fast and it does not take too much time and money to fix the hash values in all blocks. As I mentioned before, blockchain has decentralized consensus mechanism. This mechanism will play as a barrier to all fraudulent attempt. Each node in the network have a copy of chain. If hacker changes hash value in one node, that transaction is not validated by other nodes because the copies that they have is different than the one hacker has. Therefore, hacker have to fix the hash values in at least 51% of nodes in very short time so that fraudulent transaction can become legal. This attempt does not likely to happen, especially with the blockchain which has a lot of nodes/miners. This characteristic makes data in blockchain immutable and transparent.

Phewwww, it is a wall of text, isn’t it? I hope I did not make you less interest into blockchain and you can understand what blockchain is and how it becomes an inevitable technology applied in all industries next decade.

As I promised, next post will be about money and currency. Thank you so much for your interest into math, technologies and science.

Charlotte.