Updated Apr 25 2021
Blockchain is a series of information blocks that are connected and dependent on each other in order for the chain to continue. Every completed block will contain a hash (a secret code) which is added to the next block. To alter the information in one of the blocks in the chain would mean to also alter all the other blocks and that’s where the true value of blockchain technology lies, in the ability to create a chain of information that is publicly accessible and immutable (cannot be changed).
The main reason that everyone in the world developed an interest in blockchain technology is Bitcoin, a cryptocurrency that went through an explosive price growth over the last few years.
Cryptocurrencies like Bitcoin use blockchain technology and serve as an example of one of the possible use cases for it, yet there are many more that can leave you baffled on how better life could be if we used this technology, for example: running a country’s elections, a public database of important documents such as title deeds or healthcare records and many more. Here’s what we’ll talk about during our guide:
Blockchain is a series of information blocks that are connected and dependent on each other so the whole chain can continue, these blocks in the particular case of cryptocurrencies are made of transactions. Look at the example below:
Hash is a small piece of code where you enter some information and it produces an encrypted fixed-length line of text.
To make this article supercool, I want to show you a real experience of what it means to hash something and you’re gonna do it yourself!
Below I’ll provide the link to a famous website made for people to learn coding for free. The link will give you direct access to a code editor with a sample hash function ready.
Before doing the exercise pay attention to the following:
Now imagine for a second that the quotation marks instead of reading “Hello” they contained information such as “Bob sent Tom 10 Bitcoins and the transaction ID is 22”.
That’s the whole purpose of the hash!
The hash algorithms being used in blockchain technology are more complex and produce lengthier results than the one you saw in this example, but the principle is similar.
Some very interesting facts about hashes is that they’re impossible to decrypt, the only way is having the actual information that produced the hash, that’s the whole point of them.
When each block in the blockchain is filled to the limit, a hash based on all the information of the block will be generated and passed onto the next block as a connector between the two and trying to change any single bit of information in a block will result in a new hash thus breaking the chain and rendering it useless, that’s why it's tamper-proof.
Now we learned the blockchain fundamentals and hashing, but there is a lot more to go.
If a single person controlled the whole process, even though we have this blockchain structure, hashing and whatever we can think of, it’s still useless as that single person can change information on a block and fix the hashes to hide his wrongdoings.
To prevent something like these from happening blockchain technology uses a decentralised approach to verify the transactions that get added into each block, let’s take a look at blockchain properties.
Blockchain’s main properties are: being decentralised and fully distributed, immutable, secured with cryptography and that it requires consensus for decisions to be made. Let’s explore each property individually to understand the meaning behind them:
Unlike a bank which is the sole owner and operator of their transactions database, blockchain operates with a decentralised approach.
Every single participant in the network gets a full copy of the blockchain which is publicly accessible and no single person can add information on the blockchain, to perform any change a massive network validation is required.
To give you a good example, if tomorrow your bank adds $100 extra to your account by mistake, they can remove the money while you sleep and you wouldn’t even know about it, it’s all private information which they control. They can vanish your account and any record of yours from existence if they wanted.
In the blockchain this is not possible, all the information is publicly accessible and requires the effort of many network participants to do something, let’s use an example of a bitcoin transaction:
This is a very simplified explanation of what’s happening behind the scenes, but you get the idea, a single person cannot alter the blockchain as it operates in a decentralised manner where all participants compete by verifying and solving problems to add records to the blockchain and everyone has access to the information itself.
Blockchain technology solves the problem of trust by being decentralised and required massive network validation for adding information into the chain and how the chain is structured by connecting one block to the previous one with hashes, for a hacker to be able to tamper the blockchain he would need to:
The use of private and public keys for wallet addresses and hashing are the fundamentals of the blockchain technology, as you learned before, there is no way to decrypt something once it's hashed and the hash can only be matched to its origin by having the original information in the first place.
This means that if your private key is the only way to actually request a transaction to happen in the blockchain as your private wallet key is the only one that can match the public key to consider any transaction valid in the first place so miners can approve it and proceed with the rest of the process.
For the blocks themselves in the blockchain, altering a single digit in one of them would represent a completely different hash that doesn't matches with the other blocks and this renders the blockchain invalid.
For any big decision to be made on the blockchain, for example:
A consensus amongst network participants is required, they all have to vote and agree on something.
One network participant can’t wake up tomorrow and change the mathematical problem of the blockchain to make it easier for him to earn more mined bitcoins, the whole network needs to reach a consensus for anything to happen.
The bigger the network, the more secure as the consensus comes from thousands of participants voting for decisions to be made.
Blockchain technology is designed to solve the problem of centralisation, lack of trust and lack of transparency.
In any situation where these issues exist, the blockchain becomes a potential solution. Let’s use my favourite example to make our case: a country’s elections.
Would you agree with me if I say that elections should be as transparent as possible and all the voting information should be publicly available?
If you do, then great! We’re on the same page and democracy will live!
Fraudulent elections are a big problem, especially in countries where dictators are willing to resort to unlawful practises to stay in power.
A blockchain operated election means that thousands of computers all over the world could verify if each vote is valid and comes from a valid address, count them and as this process happens everyone in the whole world could see all the votes that came, the location of each one of them, time, etc.
Besides being able to verify and fact check, no single person can come and alter the votes and add a few to make a particular candidate win, the result is the result and cannot be altered.
That would be a dream to see.
Another good example of using blockchain technology is tracking public spending. That one would also be a dream come true.
Particularly I’m really tired of paying taxes and contributions and not knowing where is that money going, perhaps I just helped a politician get a new Audi for his wife or maybe the money went to buy wheelchairs for people who needed them, so far I’ve got not clue and blockchain could make a difference here.
If every single governmental bank account was publicly available to see along with each transaction, amounts, dates, government funky business would end and maybe we could actually see whether that money is actually being used for public benefit.
Blockchain technology gives us a way to eliminate the need for trust when conducting transactions, the results are the results and they cannot be altered. We also get the privilege of everyone being able to view the results as the information is publicly accessible.
If blockchain technology becomes the standard system for financial and governmental institutions, we’d definitely see a brighter world.
To finalise I want to make a very clear statement:
Just because you saw all the benefits of blockchain technology and how awesome the world could be, that doesn’t mean that Bitcoin is the answer to that problem.
Blockchain technology is awesome, bitcoin is just a cryptocurrency using the technology.
In our website you can find an article where we clearly analyse if bitcoin is really worth investing in or not, don’t make the mistake to romanticise it based on the blockchain ideals as in the end, to properly value something we only need to ask ourselves something:
What value is this asset or technology bringing into the world? How is it making it better?
Up to you to answer these questions and make your own assessment.