As easy as it sounds blockchain is a chain of blocks. Each block can contain data of any kind and it’s connected with the previous block up to the first block (genesis block) through a cryptographic mathematical procedure that maintains the network safe. It is hard or nearly impossible to hack a well protected blockchain network. That is because the entity that decides to hack a well protected blockchain network requires huge amounts of energy, time and money making the undertaking unprofitable.
The first description of a cryptographically secure chain of blocks was by Stuart Haber and W. Scott Stornetta in 1991. In 1992 Merkle trees were added to the design, improving the efficiency of storing several document certificates in one block.
Many years later, in 2008, an unknown person or group of people greatly improved the design by using a Hashcash-like method to add blocks to the chains without the need of a trusted party signing them. One year later on 2009 the design was implemented on Bitcoin cryptocurrency making it its core component.
This was the birth of blockchain, Bitcoin and all the cryptocurrencies. Today we can count over 2000 cryptocurrencies which use blockchain technology. Some of them are trying to solve various major problems, other are just useless or a try from scammers to get rich fast.
Blockchain is a chain of blocks that contains information. More accurately blockchain is a distributed ledger that is completely open to anyone. Also it has an interesting property: once some data has been recorded inside a blockchain, it becomes very difficult to change it. Let’s take a closer look at the mechanisms and components of a standard blockchain.
Each block contains 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, we will talk later about blockchain types.
The block also has a hash. It identifies a block and all of its contents and it’s always unique, like a fingerprint. When a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change. Therefore a hash is very essential to detect changes to blocks.
The third element of a block is the hash of the previous block. This is effectively creates a chain of blocks and it’s this technique that makes a blockchain so secure.
Proof-of-work’s mainly purpose is to secure the network while it tries to achieve consensus on it. For this reason, proof-of-work mechanism uses cryptography. Different blockchains may use different proof-of-work algorithms but they are all based on cryptography.
The procedure that takes place on proof-of-work of a blockchain network goes as following. Users sends some data to the network ( i.e. the X address send some data to the Z address) and the network collects this data to create the next block.
When the block is created, it’s automatically encrypted and then is sent to the network’s nodes (miners) to solve a difficult mathematical problem that requires computational power (mining).
After the problem is solved from a node, the other nodes will try to verify the solution. After consensus is reached on the majority of the nodes the block is added to the blockchain and the data reaches their recipients.
Proof-of-stake is an alternative way to achieve consensus on a blockchain. Instead of the whole network trying to find a solution to the PoW puzzle, the node which will verify the next block on the network is chosen via various combinations of random selection and wealth or age (i.e. the stake).
This method is much more energy efficient than PoW. Furthermore it is more resistant to 51% attack since the entity that attacks needs to hold 51% of the total digital coins making it very expensive to do for a reputable coin. Also it’s not on the miner’s best interest to attack a cryptocurrency he holds 51% of the coins.
Types and Uses of Blockchain
There 3 main types of blockchain: public, private and Consortium or Federal Blockchain. Each type can be used for the same or different purposes but virtually anything can be built based on the blockchain technology.
A public blockchain is what the name suggests: anyone can participate, make transactions and review/audit the blockchain. It’s for the people, by the people and of the people. The older and most known public blockchain is Bitcoin which is used to transfer value from peer-to-peer.
Private blockchains are used from individual organizations within the organizations. This means there is central control of who can run a node, make transactions or review/audit the blockchain.
It is still debatable if such a private thing can be called a “blockchain” because it fundamentally defeats the whole purpose of blockchain technology and what it represents. Examples of private blockchains can be found here ( multichain.com ).
Consortium or Federal Blockchain
Consortium or Federal Blockchain is a type of blockchain which is not entirely private and is used to reach consensus on a group of companies or representative individuals.
This way the network has more than one single point of failure which in a way protects the whole ecosystem. On this type members of the consortium can run a full node, make transactions or review/audit the blockchain.
As I stated before a blockchain can have multiple uses. The most common use is transferring value from peer-to-peer. But there are many other uses for a blockchain such as: monitor supply chains, smart contracts, retail loyalty reward programs, digital ID’s, data sharing, copyright and royalty protection, digital voting, real estate title transfer, food safety, immutable data backup, tax compilation and compliance, worker’s rights, medical record-keeping, weapons tracking, managing Internet of Things networks and securing access to belongings are some of the uses a blockchain can have.
Future of blockchain Technology
While blockchain technology is far from perfect it certainly has a lot of real-world applications. The potential of blockchain technology can change our life for the better if it is used correctly. The following years will be critical for the future of blockchain technology, not only in the development area but also for mass adoption around the world.