What is a blockchain?
A blockchain is a growing list of records (or data) called blocks that are linked and secured using cryptography. As a data structure, a blockchain is a simple concatenated list, in which the links between elements are made by hash. Thus, each block usually contains a link to a previous block (a hash of the previous block), a timestamp, and transaction data. By design, blockchains are resistant to data modification. The blockchain is „a transparent and distributed registry that can record transactions between two parties efficiently, verifiably and permanently”. To be used as a distributed registry, a blockchain is usually managed by a peer-to-peer collective network, which adheres to a protocol for validating new blocks. Once recorded, the data in any data block cannot be changed retroactively without altering the following blocks, which requires the majority consent of the network participants.
A blockchain is a decentralized, distributed and public „ledger” book of accounts, consisting of a list of chained blocks. The blockchain is used to record distributed transactions (on multiple computers), and the records cannot be changed retroactively without altering subsequent blocks. A blockchain database is managed autonomously, using a peer-to-peer network and a distributed timestamping server. These servers are managed by mass collaboration, driven by collective interests. The result is a robust trading system, where participants uncertainty about data security is marginal. Using a blockchain eliminates the possibility of copying / cloning digital assets. A blockchain thus ensures that each unit of value has been transferred only once, thus solving the problem of double spending. Blockchains have been described as value exchange protocols. These blockchain-based value exchanges can be completed faster, more securely, and cheaper than traditional systems. A blockchain can be used to assign property titles because it provides a permanent record that requires acceptance of the contract.
Blocks hold sets of transactions that are indexed and encoded in a special data structure called the Merkle tree. Each block includes the cryptographic hash of the previous block in the blockchain, which connects the two blocks to form a chain. Repeated checking of the integrity of the previous blocks can be done until the beginning of the chain, at the „genesis block”. Sometimes, in parallel with the main chain, secondary chains can appear through a process called „forking”. The blocks in the secondary chains are called „orphan blocks”.
Computers that maintain the blockchain database (also called network nodes) may have different historical versions of the database (e.g., not all of them are updated to the latest transactions). Each historical version has a „version number”, and computers keep only the most recent version they have received so far from other computers. Whenever a computer receives a newer version (usually the previous version with a single new block added), its own database is updated and then relayed to other computers on the network. Blockchains are usually built to add new blocks over old ones - the existence of incentives to work on expanding with new blocks rather than overwriting old blocks makes the likelihood of replacing one newly added block with another decrease exponentially over time. For example, in a blockchain that uses a proof-of-work system, the chain that has the longest "working time" is always considered valid by the network. There are a number of methods that can be used to demonstrate a sufficient level of calculation. In a blockchain, the calculation is performed redundantly compared to traditional computing systems, which operate in a segregated and parallel manner.
By storing data on a peer-to-peer network, the blockchain architecture eliminates a number of risks that come when data is organized centrally.
Peer-to-peer architectures such as blockchains do not have central vulnerabilities that hackers could exploit; also, they have no central critical point - that is, there is no „important” computer whose failure would cause the network to be interrupted. Blockchain security methods include the use of public key cryptography. A „public key” is a long string of random characters and represents a blockchain address that records the value of tokens sent over the network to that address. A „private key” is like a password, which gives the owner access to his digital assets or the means to interact with various applications that are built over blockchains. Data stored on the blockchain is generally considered incorruptible. While centralized databases are much easier to control, modifying and manipulating data is possible and easy to do. By decentralizing data from an „accounting book”, public blockchains provide transparency for all involved.
Each node (computer) in a decentralized system has a copy of the blockchain. The quality of the data is maintained by their massive replication and by the need to solve mathematical puzzles (proof-of-work) to validate transactions. There is no centralized „official” copy, and no user is „more reliable” than another. Transactions are published online using specialized software. Messages are delivered depending on how fast the nodes can communicate with each other. Mining nodes validate transactions, add them to a block, and then publish that block when it is completed on other nodes. Blockchains use various consensus schemes such as proof-of-work or proof of stake. Increasing the size of the blockchain is accompanied by the risk of centralization, as only a few computers and users will have the resources to process large amounts of data.
Key benefits of blockchain:
The transparent and unalterable nature of blockchain technology gives it a number of benefits for organizations:
• Transparency: the information in the blockchain is visible to all participants and cannot be changed. This will reduce risk and fraud while creating trust.
• Security: the distributed and encrypted nature of the blockchain means that it will be difficult to hack. This shows a promise for the security of business and the Internet of Things (IoT).
• Traceability: blockchain data is unalterable, ideal for tracking and tracing items or coming from complex supply chains, for example.
• Higher efficiency and ROI: distributed registries will provide fast ROI, helping companies create weaker, more efficient and more profitable processes.
• Faster processes: blockchain can speed up the execution of the process in multiparty scenarios - and allows for faster transactions, which are not limited by office hours.
• Automation: blockchain is programmable, making it possible to automatically trigger actions, events, and payments once the conditions are met.
• Data confidentiality: while the information is verified and added to the blockchain through a consensus process, the data itself is translated into a series of letters and numbers by a hash code. Network participants have no way to translate this information without a key.