Blockchain (or Distributed Ledger Technology (DLT)) has revolutionised the way data is managed, shared, protected and processed across public or private networks. The Blockchain has been popularized mainly thanks to Bitcoin (BTC), the first of its kind to emerge in 2009.
We will see in this introduction to the world of the Blockchain how its technology works and the reasons why it poses a revolution in the economy and also in other areas.
The Blockchain, a new technology
Before the appearance of the Blockchain, transactions worked through a centralised intermediary. For example, if person A wanted to transfer money to person B’s account, it went through a bank.
With this data management neither of the two users has any control over the process, of which only those banks have that information. Users are subject to their conditions.
The Blockchain eliminates intermediaries because it works with decentralised platforms, which allow each user to check information, add data and record a transaction at any time. The blockchain is a distributed and unmodifiable database, which is secure thanks to cryptographic algorithms.
In this article we will consider that a blockchain saves the transaction data as Bitcoin does, here each block can contain 1Mo of data.
Stage 1: Block chaining (with a hash)
The blocks will be chained together and each block will get a unique digital signature that corresponds exactly to the data string of the block. A block will need a new signature at minimum change. The signature is made thanks to a hash algorithm. To chain the data of block 1 to 2 you have to add the signature of block 1 to the data of block 2.
If a transaction is modified, the data within the block (here 1) will have changed and this block will need a new signature, then the signature within the data of block 2 will have to change to correspond to block 1. If the chain is broken, all users will know that the data on 1 will have been changed, so they will reject the change.
Stage 2: The creation of the signature (hash)
We have seen that to modify a single block, a new signature is needed for each subsequent block until the end of the chain, which is considered almost impossible thanks to the hash algorithm, a very complex formula for data encryption.
Only signatures that correspond to certain requirements are accepted in the Blockchain. This is the procedure of the miners (mining).
Stage 3: The qualification of the signature of a block
A signature is not always accepted. You need, for example, to start with 10 zeros. The data within the chain will have to be changed several times until the signature corresponds. A specific data called the nonce of a block is added to get to find the signature.
In short a block contains: the transaction data, the signature of the previous block and a nonce.
The miners are the ones who look for the signatures of the blocks, it is very difficult and very expensive because a great power of calculations is needed. Any user of a Blockchain network can participate but it is very difficult to find the signature.
Stage 4: Blockchain safety
As explained in step 2, it is very difficult for blocks to be chained after changing the data in a block. Let’s see why this is considered impossible.
In order for a miner to be able to modify each signature of each block to the end of the chain, he will need more calculation power than the rest of the network (51%). The reason why this theory is considered impossible is the number of network users and the costs to change everything. The more users in the network, the more secure the network will be.
Crypto coins and beyond
Criypto coins are a modified form of Bitcoin. They are the best known application of the Blockchain. But blockchains are not limited to economic data. Also thanks to the Blockchain many different data can be saved, such as medical records, identities, historical accounts, tax records and many other things. This is why this technology is so important and will increase.