Blockchains are incredibly popular nowadays. But
what is a blockchain? How
do they work, what problems do they solve and how can they be used?
As the name indicates, a blockchain is a chain of blocks
that contains information. This
technique was originally described in 1991 by a group of researchers and was
originally intended
to timestamp digital documents so that it’s not possible to backdate them or tamper with them. Almost
like a notary. However, it went mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create
the digital cryptocurrency Bitcoin. A
blockchain is a distributed ledger that is completely open to anyone. They
have an interesting property, once some data has been recorded inside a
blockchain, it
becomes very difficult to change it.
So
how does that work? Well,
let’s take a closer look at a block. Each
block contains some data, the hash of the block, and the hash of the previous
block. The
data that is stored inside a block depends on the type of blockchain. The Bitcoin blockchain for example stores the details
about a transaction here, such as
the sender, receiver, and amount of coins. A
block also has a hash. You
can compare a hash to a fingerprint. It
identifies a block and all of its contents and it's always unique, just like a
fingerprint. Once
a block is created, its hash is calculated. Changing
something inside the block will cause the hash to change. So
in other words: hashes are very useful when you want to detect changes to
blocks. If
the fingerprint of a block changes, it no longer is the same block. The
third element inside each block is the hash of the previous block. This
effectively creates a chain of blocks and it’s this technique that makes a
blockchain so
secure.
Computers these days are very fast and can calculate
hundreds of thousands of hashes per
second. You
could effectively tamper with a block and recalculate all the hashes of other
blocks to
make your blockchain valid again. So
to mitigate this, blockchains have something called proof-of-work. It's
a mechanism that slows down the creation of new blocks. In
Bitcoins case: it takes about 10 minutes to calculate the required
proof-of-work and add
a new block to the chain. This
mechanism makes it very hard to tamper with the blocks because if you tamper
with 1
block, you'll need to recalculate the proof-of-work for all the following
blocks. So
the security of a blockchain comes from its creative use of hashing and the
proof-of-work mechanism. But
there is one more way that blockchains secure themselves and that's by being
distributed. Instead
of using a central entity to manage the chain, blockchains use a peer-to-peer network
and anyone is allowed to join. When
someone joins this network, he gets a full copy of the blockchain. The
node can use this to verify that everything is still in order.
Now let's see what happens when someone creates a new block. That
new block is sent to everyone on the network. Each
node then verifies the block to make sure that it hasn't been tampered with. If
everything checks out, each node adds this block to its own blockchain. All
the nodes in this network create a consensus. They
agree about what blocks are valid and which aren't. Blocks
that are tampered with will be rejected by other nodes in the network. So
to successfully tamper with a blockchain you'll need to tamper with all blocks
on the chain,
redo the proof-of-work for each block and take control of more than 50% of the
peer-to-peer network. Only
then will your tampered block become accepted by everyone else. This
is almost impossible to do! Blockchains
are also constantly evolving. One
of the more recent developments is the creation of smart contracts. These
contracts are simple programs that are stored on the blockchain and can be used
to automatically
exchange coins based on certain conditions. More
on smart contracts in a later video. The
creation of blockchain technology peaked a lot of people’s interest. Soon,
others realized that the technology could be used for other things like storing medical
records, creating a digital notary, or even collecting taxes.
