What Is Blockchain Technology?

Most people know that cryptocurrencies such as Bitcoin use blockchain technology, but what exactly is blockchain? If you imagine Bitcoin as a car, then blockchain would be the combustion engine; i.e. blockchain is the underlying technology that drives the system.

You could think of blockchain as a database which records a single, trusted version of the digital history. We call this “database” a digital ledger. It’s important to have one version since it means data can’t be manipulated by bad actors for nefarious means. Blockchain allows digital data to be distributed but not copied or changed.

Every single person on the network has access to the ledger and can see all the transactions. This means there is no centralized copy that can be tampered with. All the data stored on the blockchain is also encrypted so while you can see the ledger, it’ll look like a bunch of numbers and letters rather than “John Smith spent 10 Bitcoin on 6 Tonnes of Saffron”.

The data stored inside a block on the blockchain will depend on what the purpose of the blockchain is. With Bitcoin and other cryptocurrencies, the data stored inside the block will be details about transactions such as the amount of bitcoin transferred, who transferred it and who it went to.

What Makes a Blockchain Secure?

Hashing

This encryption is called hashing. In simple terms, hashing is when an input produces an output of a fixed length. Bitcoin uses a hashing algorithm called SHA-256 which means that no matter the length of the input, the output will always be 256 bits in length. This hashed output functions as the block’s fingerprint in the sense that it is a unique identifier. The hash of the block is determined by the contents of the block, so any change to the data within the block will result in a new, and very different, hash.

This is what makes a blockchain so secure and immutable. If a hacker were to go into and change anything in block 3, then block 3 will now have a different hash. This means that block 4 now has an invalid hash of block 3. This makes block 4 and all blocks after it invalid. This makes identifying any changes to the blocks simple.

Each block in the chain will also contain the hash of the previous block, which creates a chain. Of course, the first block in the chain doesn’t have a previous block so this block is called the genesis block.

Proof of Work

While hashing does protect the source data by obscuring it with a seemingly unreadable output, it isn’t impossible for hackers to get around this obstacle. Today hackers have access to computers that can generate tens of thousands to hundreds of thousands hashes per second. This means that it would be possible for hackers to change all the hashes in the blockchain so they line up and the blockchain is once again valid. This is why cryptocurrency blockchains also have an added layer of security called proof of work.

Proof of work is essentially a mechanism that slows down the creation of new blocks in the blockchain. In Bitcoin, it takes around 10 minutes to create a new block. This means that if a hacker wanted to tamper with block 3, and then change the hashes for all the subsequent blocks, they would have to complete the 10 minute proof of work process each time. This is incredibly slow and the break in the chain would easily be identified before the hacker could complete the task.

There’s another reason a change will be identified before the hacker has the chance to complete the tampering, and that is the decentralized nature of the chain. Instead of the blockchain being managed by one central party, it is instead managed by a peer to peer network. This means that every node on the network receives a copy of the blockchain which can then be used to verify the blockchain.

The History of Blockchain

In 1991, W. Scott Stornetta and his colleague Stuart Haber published a paper that detailed how a digital hierarchy called a “block chain” could be used for digital time stamps for ordering transactions. The 1991 paper was titled “How to Time-Stamp a Digital Document.” The paper described how a client could send a document to a timestamping server, and this server would assign a timestamp. The server would also link the document to the previous document. The documents were connected through specific data and not the location of the document. This means that the data would become invalid if it was tampered with.

Stornetta and Haber went on to co-author a number of papers that were important in the field of cryptography. Because of this, Stornetta is often called the inventor, co-inventor, or founding father of blockchain.

It wasn’t until 2008 that blockchain technology would reach its full potential with the invention of Bitcoin. In 2008, Bitcoin’s presumed creator Satoshi Nakamoto published a whitepaper that described the use of blockchain technology in a peer to peer digital currency system in which the “double spending” problem would be solved. It’s not possible for double spending to happen on a blockchain when it is functioning correctly since the data is immutable.

Since Bitcoin, lots of other blockchain-based cryptocurrencies have popped up with the aim to expand and improve on Bitcoin’s technology. Around 2014, the focus shifted to look at other uses of blockchain other than cryptocurrency. Some countries are now looking into blockchain-based voting, blockchain-based medical records and so on.