11 Apr Blockchain 101
4 Basic Things to Know
Blockchain, ever heard about it? Most likely, you’ve heard of it but haven’t given it much thought and the attention it deserves. What’s with all the hype? Well, Blockchain is a technical wonder with far-reaching implications not only for the financial services industry but also for other sectors and enterprises. Now, to fully grasp what Blockchain really is, we all first need to understand cryptocurrency.
We’ll use Bitcoin as an example to demonstrate how this works. To begin, Bitcoin is one of the early kinds of cryptocurrency. Unlike traditional currencies, cryptocurrencies have the benefit of no single organization regulating its transactions; they are decentralized, and hence may be controlled and monitored by anyone who desires to do so via a peer-to-peer network.
A Bitcoin, or any other cryptocurrency for that matter, is kept as values in a table of transactions rather than as coins or individual entities. The whole history of the currency’s transactions is stored as a “blockchain,” and disseminated as “blocks,” which are then solved/verified concurrently by a large number of users/volunteers.
If you’re interested in learning about Bitcoin and cryptocurrencies, you’ll also need to understand blockchain.
Here are 4 basic things you must know about this new technology.
1. The Blockchain’s Invention, How It Started
Satoshi Nakamoto (this has not been proven as a name, a person, or an actual legal entity yet) proposed the notion of a blockchain in 2008 and it was initially used as part of the digital Bitcoin currency in 2009. It is described as a “Peer-to-Peer Electronic Cash System” in the paper, which also introduces blockchain technology. All Bitcoin transactions are recorded in the blockchain, which serves as a public ledger. Bitcoin was the first digital currency to tackle the problem of double-spending using blockchain technology, and it did so without the assistance of a central server or authoritative organization.
2. It’s a Series of Blocks Linked Together
Each ‘block’ of data is comparable to a record in a traditional database. A blockchain is a decentralized and shared database in which the database storage devices are not all connected to a common processor. It is a growing collection of records, known as blocks, that are linked and safeguarded using cryptography. Every block is linked to the one before it and contains transaction data and a timestamp.
Blocks can’t be altered or removed, but they may be added to record new information. Everyone who participates in the blockchain may view all blocks, resulting in a distributed ‘ledger’ – a formal record of transactions – that assures all data is available and untouched from the time it was produced. Because all of this information is in one place, blockchain is ideal for any application in which
3. Blockchain Was Created to Be Secured
The structure of blockchain, in theory, renders it impervious to hacking. Each block, or data record, is digitally signed with a ‘hash’ – a mathematical process. If any of the records are modified or subsequently change the calculated hash will no longer match the original hash, causing the change to be identified.
4. Blockchain Technology is Heavily Related to Mathematics
Hash tables and Cryptography known as public-key encryption are the two mathematical concepts that serve as the foundations of blockchain technology. A hash table, explore techniques used to create lists that store data, each item in a list, such as an employee record, is assigned a unique value known as a key. This key should be a number or a string of characters that can be transformed into a number in the best-case scenario. When this key and the list’s size are used as inputs to a mathematical function called a hash function, the output is the index, which is a number that represents a position in the list (1st, 2nd, 3rd, etc.).
Public-key cryptography, also known as asymmetric encryption, is used to validate blockchain transactions. It’s a framework that employs both a private and a public key. The sender uses the public key to encrypt data, while the receiver uses the private key to decode it, usually using the RSA technique. A public/private key pair must be created by each account owner in the network. Private keys are 256-bit numbers between 0–2^256. With such a large number range, two persons getting the same keys is statistically impossible—there are 10⁷⁷ keys available.