What is Blockchain? In short, it is a chain of blocks linked together for recording transactions, tracking assets, and building trust. Find out what is Blockchain and why it might be the future of finance.
Blockchain History
David Chaum, a cryptographer, proposed a blockchain-like protocol in his 1982 dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” Stuart Haber and W. Scott Stornetta described additional work on a cryptographically secure chain of blocks in 1991. They desired to put in place a system that would prevent document timestamps from being tampered with.
In 1992, Haber, Stornetta, and Dave Bayer incorporated Merkle trees into the design, which increased efficiency by allowing several document certificates to be collected into a single block. Since 1995, their document certificate hashes have been published in The New York Times every week under their company Surety.
In 2008, a person (or group of people) known as Satoshi Nakamoto proposed the first decentralized blockchain. Nakamoto significantly improved the design by timestamping blocks without requiring them to be signed by a trusted party and introducing a difficulty parameter to stabilize the rate at which blocks are added to the chain. The following year, Nakamoto implemented the design as a core component of the cryptocurrency bitcoin, which serves as the public ledger for all network transactions.
The bitcoin blockchain file size, which contains records of all transactions that have occurred on the network, reached 20 GB in August 2014. (gigabytes). In January 2015, the size had nearly tripled to nearly 30 GB, and between January 2016 and January 2017, the bitcoin blockchain grew from 50 GB to 100 GB. By early 2020, the ledger size had surpassed 200 GB.
In Satoshi Nakamoto’s original paper, the words block and chain were used separately but were eventually popularized as a single word, blockchain, by 2016.
What is Blockchain?
Blockchain is a technology that allows cryptocurrencies to exist and is shared among computer network nodes. Blockchains are best known for playing a critical role in cryptocurrency systems by keeping a secure and decentralized record of transactions.
A blockchain’s innovation is that it ensures the fidelity and security of a data record and generates trust without the need for an intermediary.
A blockchain gathers information in groups known as blocks. These blocks contain a pool of information and have specific storage capacities that, once filled, are closed and linked to the previously filled block, forming a chain of blocks known as the blockchain.
All new information that follows that newly added block is compiled into a newly formed block, which is then added to the chain once it is complete. In addition, when a block is added to the chain, it is given an exact timestamp. The timestamp demonstrates that the transaction data was present when the block was created.
How Blockchain Works
Blockchain’s goal is to enable digital information to be recorded and distributed, but not edited. A blockchain, in this sense, serves as a foundation for immutable ledgers, or records of transactions that cannot be changed, deleted, or destroyed. Below are outlined detailed steps as to how Blockchain works.
Step 1
A Transaction is initiated
First, two users agree to conduct a transaction by exchanging a unit of value, such as digital currency.
Step 2
Block production
Because of the ongoing transactions by other users on the blockchain network, the transaction adds to the list of other pending transactions, resulting in the formation of a block.
Step 3
A Hash is created
A hash is contained within a block and is similar to a fingerprint in that each block contains its own hash, which aids in identifying the contents of the block such as sender, receiver, and the number of tokens to be transferred.
It also contains the previous block’s hash, which is attached/linked to the new block. Because there is no preceding block, the Genesis block is the first block in the chain.
Step 4
Verification
Nodes are essentially what keep a blockchain network running. A node is a computer that is linked to a cryptocurrency network and interacts with it by performing specific functions such as creating, receiving, or sending data.
It is a decentralized distributed ledger that keeps track of all cryptocurrency transactions and makes the data available to end users. Before executing the transaction, these nodes evaluate and verify that everything is still in order, and the node generates and displays a distributed ledger to both users.
Why Blockchain is secure
In several ways, blockchain technology achieves decentralized security and trust. To begin, new blocks are consistently added to the “end” of the blockchain. It is nearly impossible to change the contents of a block after it has been added to the end of the blockchain unless a majority of the network agrees to do so.
This is because each block contains its own hash, as well as the hash of the previous block and its timestamp. These hashes are codes that are generated by a mathematical function that converts digital data into a string of numbers and letters. If that information is changed in any way, the hash code will change as well.
To successfully hack a blockchain network, the hacker must obtain 51% of the copies so that their new copy becomes the original copy and, thus, the agreed-upon chain. Such an attack would also necessitate a large number of resources, as they would have to redo all of the blocks with different timestamps and hash codes.
The cost of accomplishing such a feat would almost certainly be insurmountable given the size and speed with which many cryptocurrency networks are growing. This would be not only extremely costly but also likely futile. Such an action would not go unnoticed by network members, who would notice such drastic changes to the blockchain.
Members of the network would then hard fork off to a new version of the chain that was not affected. This would cause the value of the attacked version of the token to plummet, rendering the attack ultimately pointless because the bad actor now controls a worthless asset. It is designed in this manner so that participating in the network is far more economically incentivized than attacking it.
Bottom line: Why Blockchain is the Future
Since its inception, the blockchain has increased in adoption, amounting to trillions of dollars. Digital assets like cryptocurrencies and NFTs, all exist on blockchain technology. The global crypto market cap alone, according to coinmarketcap, is $877.68 billion, while that of NFT is $442.6 billion. These all reside on the blockchain.
Blockchain has changed the way we view and do business. It’s no longer business as usual but business in a secure, scalable, immutable, and trustless environment. “Trustless” network—not because business partners don’t trust each other, but because they don’t have to. This trust is built on blockchain’s enhanced security, greater transparency, and instant traceability.
Also, many sectors have integrated blockchain technology into their day-to-day businesses. The blockchain industry’s promise extends beyond its technological breakthroughs. It has the potential to fundamentally transform how we operate as a society in the future.
