Everyone talks about cryptocurrencies, especially Bitcoin. There is growing interest in this currency and all the projects that make up the crypto world. At some point, the term “Blockchain” always comes up as the technology behind cryptocurrencies.
But… what is blockchain? How is it formed or what elements make it up? Where is it physically located? You will find the answers to these questions in this post.
Definition
Let’s start by defining it generally. Blockchain is a technology that involves recording all transactions of a cryptocurrency (each crypto has its own blockchain) in a large ledger. This ledger is distributed across millions of computers around the world and is publicly accessible. The term “public” refers to the transactions, which I will delve into later.
Perfect! Now we know that blockchain is a ledger, distributed and public. All cryptocurrencies use this ledger to maintain an immutable record of their transactions. This means that when person A transfers X amount of Bitcoins to person B, the Bitcoin blockchain records that transaction forever. That transaction cannot be modified, altered, or deleted.
Composition of Blockchain
We now know generally what blockchain is, but what elements make it up? Blockchain translates to “Chain of Blocks“, meaning it creates blocks with incoming transactions.
For example, suppose every 100 transactions create a new block in the blockchain, which links to the previous block and gets recorded. Once that last block is recorded, the next block starts forming with the following 100 transactions. That’s why it’s called a “Chain of Blocks”.
Composition of a Block
Okay! But what specific information does each block in the Blockchain store? There are three types of data:
- The first type of data is the transactions. In our example, 100 transactions with all their data (amount, when the transaction occurred, sender’s wallet, receiver’s wallet, etc.).
- The Hash of the previous block.
- The Hash of the current block.
Wow… The wallet is where you store your cryptocurrencies; you can send and receive cryptocurrencies just like you do with your bank account. Now you might ask: What is a Hash?
Hash
A Hash is the identification number of the block. This number is generated from the content of those 100 transactions. Therefore, if someone tries to change any data in a transaction, the hash of that block automatically changes. This is crucial for security and is the main reason blockchain technology is 100% secure.
A block, having the data of the Hash of the previous block, “connects” permanently and immutably to that vast chain of blocks. How this Hash is obtained is beyond the scope of this post, as it involves very advanced mathematical and cryptographic models.
Security
Why is it so secure? Can a blockchain be hacked? What other considerations does this technology take into account for its security?
In terms of security, the information of a transaction cannot be modified without altering the hash of its block. If this were to happen, that block would not match the next block. Additionally, blockchain is distributed across millions of computers worldwide.
Each computer has an exact replica of the blockchain. Thus, if a computer is hacked and changes a transaction, almost immediately all other computers will know that the block was modified and it will automatically be excluded from the network.
For a cyber attack to be successful, it would need to change a transaction in the last block on every single computer simultaneously. With current technology, this is impossible; only quantum computing could theoretically hack a blockchain.
Applications.
Blockchain can be used in many applications such as contract signing, election voting, storing or verifying medical and banking records, tracking food supply chains, trading digital resources, verifying educational credentials, and many more.
Cryptocurrencies and blockchain in general have revolutionized many areas of our lives. Being informed and prepared for the changes that will come in the next few years is almost a duty if you don’t want your financial health to be negatively affected by technological advances.