Intro to Blockchain
Most people have a hard time understanding what blockchain is because the term blockchain is used in many different ways for the blockchain industry, blockchain technology, and generally for distributed technologies. The tech is based on decades of research in computer sciences and other fields. The core concept is a distributed database among many participants without one specific owner. The main goal of blockchain is to eliminate the needed trust in third parties with unchangeable data in a shared bookkeeping ledger – think of an append-only Google Sheet that is owned by everyone. The name blockchain was selected because data is added block by block resulting in a chain of blocks. By now, there are more technologies that enable “immutable data” but use other data structures instead of the chain of blocks. The correct term for all these technologies is Distributed Ledger Technologies but you can use it interchangeably with blockchain.
What is Blockchain?
A blockchain is a chain of blocks consisting of data sets and connected via cryptography. The idea of digital documents containing time stamps (like a notary) originated in 1991 but was first implemented by Satoshi Nakamoto in 2009 in the creation of Bitcoin. Ultimately, a blockchain is a growing shared distributed ledger, which makes it very hard to tamper with its contents.
What is in a Block?
A Blockchain contains the data of the block, the hash of the block and the hash of the previous block. Different blockchains store slightly different data in a block. In general, data can be records of transactions or documents like medical records. Since all network participants have to store a copy of the blockchain, you would not store all data directly on the blockchain but rather a hash of the data or a link to the data (less expensive!). A Data Center or the Interplanetary File System (IPFS) can be used for actually storing the documents. If there is no transaction on a network in a given amount of time, a block can also be empty.
What is a Hash?
A block on a blockchain contains a hash which is a string of letters and numbers of a certain length that is unique to each block and comparable to a fingerprint. It is created by a defined hash function and dependent on the block’s contents. One small change of data results in a completely different hash. This makes the hash very useful if you want to detect changes in a document or block.
What connects the Blocks?
The hash of the previous block connects the last block with the new block. If someone was to tamper with the information on a block, a completely new hash for that block would be created which would make all the following blocks in the chain invalid, as they no longer contain the valid hash of the previous block. You would need to recalculate all block hashes to make the blockchain valid again.
Prevent tampering: Consensus
Hashes are not enough since computers are very powerful today and could calculate all the hashes after changing an old blocks data. Blockchains utilize consensus mechanisms such as Proof-of-Work or Proof-of-Stake to control the creation of new blocks and set the right incentives for block creators based on game theory. For example, in Bitcoin miners need to find the solution to a mathematical problem to add a new block and receive a financial reward for that. The complexity of the mathematical puzzle is regularly adjusted so that blocks are created approximately every 10 minutes in Bitcoin.
Prevent tampering: Decentralization
Blockchain is based on a P2P network (Peer-to-Peer). Network communication occurs directly between independent participants, so-called nodes, without the involvement of a central authority – hence eliminating one single point of failure. These nodes can store a full copy of the blockchain and verify if all information is still correct. The nodes have to further agree upon the validity of new blocks. The elimination of middlemen makes blockchain a censorship-resistant decentralized network.
An attacker would have to tamper with all the blocks on the chain, redo the Proof-of-Work for each block (in Bitcoin) while controlling more than 50% of the computing power of the entire network (51% attack). This is economically close to impossible to realize which makes information on blockchains immutable and very secure.
More features & insights
By now, there are hundreds of implementations of blockchains and other distributed technologies (DLT). These DLTs are constantly advancing on many levels and differ in terms of decentralization, security, throughput and functionality. Blockchains utilize different hashing algorithms, different consensus algorithms, optimize data storage, and the processing of transactions. An overview of blockchain protocols can be found here. Additional research on governing decentralized blockchains, anonymity in networks, secure smart contracts or scaling blockchain is being implemented in core blockchains and in other protocols & apps that build on top.
Good blockchain introduction videos
More resources
Simply Explained
Our blockchain introduction is closely following Simply Explained’s great intro video. Check out more of their great videos.
Introduction to Cryptocurrency
Haseeb Quereshi provides a great introduction to cryptocurrency including the history of blockchain and cryptography insights.
Bitcoin Simulator
This interactive tutorial is for everyone who wants to understand how Bitcoin really works. The contents of this tutorial go far beyond the usual introductions and include great explanations, the creation of a wallet, hashes and much more. No knowledge is required.
Blockchain DEMO
Another great introduction and demo of blockchain. You can watch videos, play with hashes, and start sending tokens around.
What is Blockchain Technology?
Blockgeeks provides an extensive introduction to blockchain technology, how blockchain works and how it may be used.