Blockchain explained: The technology that’s transforming the world of finance

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when you think about blockchain probably

the first thing that comes to mind is

bitcoin or cryptos

but actually the technology has so much

more potential beyond cryptocurrencies

blockchains have become popular because

they allow us to secure and verify all

kinds of data in a decentralized network

that cannot be altered

the idea has its roots as far back as

1991 when two scientists stuart haber

and scott stornetta proposed a system to

protect time stamps on documents from

being interfered with

satoshi nakamoto then built on this

system

he deployed the first public blockchain

when he invented bitcoin in 2009.

put simply a blockchain is a database in

the form of a distributed ledger that

uses cryptography to secure any kind of

information

this ledger takes the form of a series

of records or blocks that are each added

onto the previous block in the chain

hence the name blockchain

each block contains a timestamp

data and a hash

this is a unique identifier for all of

the contents of the block

sort of like a digital fingerprint

the block also contains the hash of the

previous block in the chain but we'll

come back to hashes in a second

crucially once data has been recorded

and verified in a block it cannot be

altered

instead if a change has to be made this

is recorded and verified in a new block

added to the chain

therefore

each new block reinforces the

verification of the previous block and

hence the entire blockchain

now let's get back to hashes these are

the backbone of blockchain technology

it's how all the participants in a

public decentralized network can agree

on how a block is verified and added to

the chain

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a cryptographic hash function is

basically a mathematical algorithm that

maps data of arbitrary length

to an output of fixed length

so if you want to represent for example

a list of names of varying lengths a

hash function would output each of these

names the data into a unique string of

numbers of a fixed length this string of

numbers is known as the hash

the hash function will return the same

hash no matter how many times you input

the same data if you even slightly

change the input of data the hash will

change completely

hashing is considered a function that

only works one way

that's because it's highly infeasible to

reverse engineer the data that outputs a

given hash without a huge huge amount of

computational power

infeasible but not impossible

the fastest way to guess the data that

produces a given hash is simply to guess

and check

again

and again

and again

in the bitcoin blockchain computers in

the network join in this elaborate

guessing game hoping to solve the puzzle

first

here the computer with higher

computational power meaning the

capability to run through more guesses

faster

is more likely to win the race

and therefore verify the block for the

reward of bitcoin

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it's important to remember that the word

blockchain doesn't describe any single

database or network

rather it's a type of technology and

there are different kinds of blockchains

that work in different ways

a public blockchain like bitcoin allows

anyone to join the network and access

the distributed ledger

a private blockchain is a closed network

it still uses some decentralization and

a peer-to-peer system but overall this

kind is controlled by a single entity

and access is restricted to a defined

network

a hybrid blockchain is a combination of

a public and private blockchain

this kind of blockchain allows an entity

to distribute a ledger with some

publicly accessible data

but also restrict access to more

sensitive data within the network think

of a blockchain as a place where you put

data

into in a way that it can't be later on

tampered with or changed and so you can

imagine that a blockchain is useful

anytime

you have any

sensitive data or important data that

you care about that you really want to

make sure is always represented very

accurately currencies are certainly one

such

type of data but there's certainly other

data as well

increasingly people have

used the state of a program the actual

program itself

has something that they want to put into

one of these blockchains and have

effectively run in a way that can't be

tampered with there's a

a phrase for this called smart contracts

and increasingly a lot of new

blockchains are are allowing you to

effectively

program them in a way that can't be

tampered in a way that can't be changed