Beginner’s Guide to Blockchain
Blockchain is a familiar term and anyone who has been following the financial news must have heard about it. It is quite surprising that not many people know what the technology entails. If you are one such person, this complete beginners’ guide will answer any questions you may have about digital technology.
Blockchain technology is the brainchild of an anonymous individual or a group of people under the pseudonym Satoshi Nakamoto. This ingenious invention has come a long way since the release of Bitcoin’s white paper in 2008 by the said individual(s) and is taking the IT industry by storm.
However, regular folk just could not understand what all the fascination was all about. A good number is quite skeptical because they are unsure and ignorant of this groundbreaking technology.
Let’s break down this technology and help you figure out what it’s all about.
What is Blockchain?
Blockchain technology, in the simplest terms, is defined as a chain of encrypted blocks that contain information. Each block has a unique identifier (hash) and is managed by a cluster of computers. Blockchain is not owned by a single entity, as opposed to the current web 2.0 system that is owned by only a handful of companies.
Blockchain consists of three major concepts: blocks, nodes, and miners.
This is where the data is stored in the chain. The information in these blocks depends on the type of blockchain. They contain a random whole number called nonce that is generated at the creation of the block.
The nonce then generates the blocks identifying header called a hash. A hash is as unique to the blockchain as a fingerprint is to humans. So, once a block is created, the hash is tied to whatever information it holds, and any change of information in the block will also change the hash.
It’s easy to identify if the information in a block has been tampered with. All you have to do is check if the hash has changed. Blocks ensure that the network stays secure. Any change is immediately noticed and tracked affecting its verification.
These are connection points that can recent, create, store and send data across a network. They are the dots that connect the system. They are accessible on devices in which you can install blockchain software and be able to access the technology and its services, for example, Bitcoin, e-wallet and other blockchain services.
There are two types of nodes, full nodes, and partial nodes. Full nodes verify incoming blocks and proceed to store the blockchain and all the data on it. Subsequently, full nodes need vast storage space for them to store the blockchain.
On the other hand, partial nodes, also known as light nodes, can only verify incoming blocks but lack the adequate storage for the blockchain. Keep in mind that some full nodes can also be a miner.
Now through blockchain, users can perform certain activities including making transactions, receiving and transmitting transactions, tracking and also verifying transactions. And now, miners enable more functions to be completed.
Miners are network users who perform an activity known as “Proof of Work“. The first network user to do the Proof of Work for a blockchain can generate rewards in the form of bitcoins.
Proof of Work
Mining is preempted on the assumption that nobody else is trustworthy on the network. In the worst-case scenario, even if 50% of those network users who determine the consensus that verifies a blockchain are compromised, the system still strives to ensure it is secure.
Miners, therefore, ensure further security, meaning blockchain technology is entirely pursuing a full proof security system for its network. What happens is network users, known as miners, compete to solve various complex computational cryptographic riddles where they seek solutions that will be verified and added to the blockchain.
The first miner to successfully do so stands to be verified or corrected by the other competing miners until the block is confirmed. If the miner’s solution is validated to be accurate, they get rewarded in the form of coins that they can cash.
Mining is expensive due to the extensive electricity consumption and high hardware cost, thus a costly security measure.
Other Ways Blockchain Secures Networks
Blockchain technology equally depends on so much more to secure its network. It does so through hashing, proof of work and peer to peer network. This part gets a bit technical, but we’ll wrap it up well to help you understand blockchain.
Hashing is the unique fingerprint of the blocks that distinctly identifies it and the information it contains. Aside from this, there is the proof of work and peer to peer networks that decentralize the network from a single entity.
Nodes, as previously mentioned, allow for tracking any transaction within each block and thus verifying all is in order within the blockchain. The nodes also keep a copy of the blockchain.
Peer to Peer Network
Imagine how much more secure this network is. When one joins a blockchain (which has open access for anyone to join), they become nodes and have a full copy of the blockchain. Every peer on the network gets notified if any block within the blockchain is tampered with enabling them to track and verify that the transactions are legitimate.
In case of any change, for example, when a new block is added to the chain, all nodes with access to the blockchain get notified. After verifying details, (though the system’s hashing has already secured the network) everyone on the blockchain, through a consensual process proves the transaction valid.
To compromise the security of this network, over 50% of the network users of a blockchain would have to be overridden or tampered with.
The Blockchain is So Much More: There’s so much more to blockchain technology. However, armed with the information in this article, you should be better placed to discuss blockchain and how the technology works.