Block chain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. A simple analogy for understanding block chain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent. Blockchain consists of three important concepts: blocks, nodes and miners.
Every chain consists of multiple blocks and each block has three basic elements:
- The data in the block.
- A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash.
- The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes.
When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined. In a blockchain every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn’t easy, especially on large chains.
Miners create new blocks on the chain through a process called mining. Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the “golden nonce” and their block is added to the chain.
Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it’s extremely difficult to manipulate blockchain technology. Think of it is as “safety in math” since finding golden nonce requires an enormous amount of time and computing power. When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially.
How Block chain Works
When a block stores new data it is added to the blockchain. Blockchain, as its name suggests, consists of multiple blocks strung together. In order for a block to be added to the blockchain, however, four things must happen:
- A transaction must occur: Let’s continue with the example of your impulsive Amazon purchase. After hastily clicking through multiple checkout prompt, you go against your better judgment and make a purchase. In many cases a block will group together potentially thousands of transactions, so your Amazon purchase will be packaged in the block along with other users’ transaction information as well.
- That transaction must be verified: After making that purchase, your transaction must be verified. With other public records of information, like the Securities Exchange Commission, Wikipedia, or your local library, there’s someone in charge of vetting new data entries. With blockchain, however, that job is left up to a network of computers. When you make your purchase from Amazon, that network of computers rushes to check that your transaction happened in the way you said it did. That is, they confirm the details of the purchase, including the transaction’s time, dollar amount, and participants.
- That transaction must be stored in a block: After your transaction has been verified as accurate, it gets the green light. The transaction’s dollar amount, your digital signature, and Amazon’s digital signature are all stored in a block. There, the transaction will likely join hundreds, or thousands, of others like it.
- That block must be given a hash: Not unlike an angel earning its wings, once all of a block’s transactions have been verified, it must be given a unique, identifying code called a hash. The block is also given the hash of the most recent block added to the blockchain. Once hashed, the block can be added to the blockchain.
Is Blockchain Secure?
Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. If you take a look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a “height.” As of January 2020, the block’s height had topped 615,400.
After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block. That’s because each block contains its own hash, along with the hash of the block before it. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well. Here’s why that’s important to security. Let’s say a hacker attempts to edit your transaction from Amazon so that you actually have to pay for your purchase twice. As soon as they edit the dollar amount of your transaction, the block’s hash will change. The next block in the chain will still contain the old hash, and the hacker would need to update that block in order to cover their tracks. However, doing so would change that block’s hash. And the next, and so on. In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete. To address the issue of trust, blockchain networks have implemented tests for computers that want to join and add blocks to the chain. The tests, called “consensus models,” require users to “prove” themselves before they can participate in a blockchain network. One of the most common examples employed by Bitcoin is called “proof of work. While nothing is 100% secure, block chain is designed to be immutable, tamper-proof and democratic
Establish digital identity
As the identity component of blockchain technology is fulfilled through the use of cryptographic keys. Combining a public and private key creates a strong digital identity reference based on possession.A public key is how you are identified in the crowd (like an email address), a private key is how you express consent to digital interactions. Cryptography is an important force behind the block chain revolution.
Serve as a system of record
Block chains are an innovation in information registration and distribution. They are good for recording both static data and dynamic data (transactions), making it an evolution in systems of record.
In the case of a registry, data can be stored on blockchains in any combination of three ways:
- Unencrypted data: can be read by every blockchain participant in the blockchain and is fully transparent.
- Encrypted data: can be read by participants with a decryption key. The key provides access to the data on the blockchain and can prove who added the data and when it was added.
- Hashed data: can be presented alongside the function that created it to show the data wasn’t tampered with.
Blockchain hashes are generally done in combination with the original data stored off-chain. Digital ‘fingerprints’, for example, are often hashed into the blockchain, while the main body of information can be stored offline.
Such a shared system of record can change the way disparate organizations work together.
Currently, with data siloed in private servers, there is an enormous cost for inter-company transactions involving processes, procedures and cross-checking of records.
Why use a block chain?
As the implications of the invention of have become understood, a certain hype has sprung up around block chain technology. This is, perhaps, because it is so easy to imagine high-level use cases. But, the technology has also been closely examined: millions of dollars have been spent researching block chain technology over the past few years, and numerous tests for whether or not block chain technology is appropriate in various scenarios have been conducted.
Block chain technology offers new tools for authentication and authorization in the digital world that preclude the need for many centralized administrators. As a result, it enables the creation of new digital relationships. By formalizing and securing new digital relationships, the block chain revolution is posed to create the backbone of a layer of the internet for transactions and interactions of value But, with all the talk of building the digital backbone of a new transactional layer to the internet, sometimes block chains, private cryptographic keys and cryptocurrencies are simply not the right way to go.
Future of block chain technology:
The future of block chain does seem bright. In the future, we can see block chain being integrated into almost everything around us, including artificial intelligence and internet-of-things. Block chain is an emerging technology with a lot of things that can be improved in the near future. Block chain in the future will revolutionize business processes in many industries, but its adoption requires time and efforts. Nevertheless, in the near future, we can expect that governments will finally accept block chain benefits and begin to use it for improving financial and public services. Though some block chain startups will fail, people will get more experience and knowledge on how to use this technology. Block chain will stimulate people to acquire new skills, while traditional business will have to completely reconsider their processes. All in all, by 2020, we can see more examples of successful implementation of block chain technology.
Block chain technology has become popular due to its successful adoption for cryptocurrencies like Bitcoin. This distributed digital ledger has many advantages as it can keep the records of all data or money transaction made between any two parties in a secure, immutable, and transparent manner.
Last year, the concept of block chain started to capture public attention. Experts predict block chain technology will be implemented for various industries and expect that the future of block chain is to revolutionize traditional business processes.