What is blockchain technology and how it works?
Nowadays people that never have listen about blockchain is less, but also it is true that is the most people that do not have clear what it is exactly. This is a new paradigm that comes to change our way to understanding digital world, and sooner or later it is projected to be completely in our everyday. Although blockchain has been most related in economics through bitcoins and cryptocurrencies, this technology has spread to almost any industry field. Even if some of its basis are a little complex, let’s try understand what blockchain technology is and how it works in this article.
What is blockchain?
Blockchain term refers to a distributed data structure based on blocks where information is grouped and linked to metadata from previous blocks, forming a chain in a temporal line. This is the main key of this technology, because by its design is resistant to any modification of an isolated block of data. In a few technical words, each block contains a timestamp, transaction data and previous block cryptographic hash. That is why blockchain has its most known use in economics through bitcoin revolution because is the secure background technology where cryptocurrencies are based; being its main goal to eliminate intermediaries and create a decentralized system.
Blockchain is a unique, shared and digitized record that cannot be modified once has been agreed and verified by a transaction; it allows asset secure transfer from one place to another, without third parties intervention because all transactional parts maintain a copy of that record. Which means that it would be very difficult to modify each of its copies globally distributed in several nodes of a network. Basically is like a binnacle that is almost impossible to falsify.
How blockchain works?
Blockchain operation can be a little complex to comprehend if we delve into internal implementation details, but its main idea is simple to understand. At this point, we already know that it is a chain of blocks, which contain encoded information of a transaction on the network; by being intertwined they allow transferring data with a fairly secure encoding through cryptography.
What is truly novel in blockchain is that transfer does not require a third party to certify information, but rather it is distributed in multiple independent and equal nodes that validate it although they do not have the need to know each other. Once agreed information cannot be edited or eliminated, since it is you would have to modify the information in the previous blocks; only new information can be added, since blocks are connected to each other through encryption. Data stored in a blockchain is usually transactions. We could really consider that what is recorded are atomic changes in a system state.
Let’s go a little bit further into details.
Doing an x-ray on each block it must contain:
- Block information itself and transaction package.
- Valid records quantity.
- Transaction encoded information on the network.
- One hash code linking block that precedes it.
- One hash code linking block that follows it.
- Each record is a transaction.
- Transactions are entered in order in which they occurred, order is very important.
- Each block has a specific and immovable place within the chain.
- A hash is a string of numbers and letters, produced by hash functions. It is a unique code that would be like the block fingerprint.
- Even minimum change in a string creates an entirely new hash.
- Hash depends both transaction itself and previous transaction hash.
- A new block is created once a block reaches a certain number of approved transactions.
- As new records are created, they are first verified and validated by all nodes on network and then added to a new block that is linked to the chain.
- Registry is updated on all computers on the network at same time.
- Blockchain is updated every ten minutes. It does it automatically.
- Each network node has a copy of the whole chain.
- As soon as record is updated, it can no longer be changed. Only can add new entries to it.
Information validation process on a blockchain is called blockchain mining following a set of well-defined rules. For example, when there are two blocks that point to the same previous block in this mining process, first one to be decrypted by most of nodes is the winner. That is, majority of points in network must agree to validate information. Therefore, although blockchain generates multiple blockchains the longest blockchain will always be legitimized. That is the reason why it is almost impossible to fake it.
Blockchain was initially created to stamp documents and make them secure and unmodifiable. It is generally associated with Bitcoin and other cryptocurrencies just because of them became popular, but these are only the tip of the iceberg. Its potential allows an infinite number of applications in many areas and markets beyond financial transactions such as public administration, science, Internet of Things (IoT), and so on.
Other examples where blockchain has been successfully applied are:
- On products supply chain following all it processing until delivery.
- Electoral processes can rely on use of decentralized accounting for the counting of votes, which can be a good option to remedy the shortcomings of the existing audit systems in elections.
- Systematize property titles or carry out validation of studies abroad.
- Health records could be unified and stored in such a way that patient medical history would be safe and at the same time available to each authorized doctor, regardless of the health center where there are treated.
- Pharmaceutical industry can use this technology to verify drugs and prevent counterfeiting.
- In IoT devices can communicate through network in a direct, secure and reliable way, without intermediaries.
- Logistics and courier services, smart contracts and much more.
Now that we know what blockchain is and how it works, is clear for us that any type of information that needs to be preserved intact and must remain available can be stored on it in a secure, decentralized and efficient way without intermediaries. Furthermore, if that information is stored encrypted, its confidentiality can be guaranteed, since only those who have the encryption key can access it. Its technology allows us to store information that can never be lost, modified or deleted. Without a doubt blockchain give us an immutable and decentralized layer that the Internet has always needed.