Blockchain 101 — for non-developer minds.
There is a chic word in English, and that is “consensus”. It has its roots in Latin as “consentire” and the word “consens” which means “to agree” or “agreed”. Then it became the word it is today in the mid 17th century. Consensus means a general agreement. How is that relevant?
Consensus is the common trait of money and blockchain, in some aspects.
Let’s understand money first. Money is by the definition, something generally accepted as a medium of exchange, a measure of value. See the word “accepted”. It means that money needs people to believe in it, to accept it first to become an asset. For something to be a measure of value, simply there needs to be a big sum of people accepting it. Money requires a social consensus to exist. Consensus plays a great role in blockchain technologies as well but we’ll get to that in a minute.
Blockchain, in simple terms, is a database. A blockchain is a chain of blocks that contains information. This technique was described in 1991 by some researchers and they intended to timestamp digital documents so that it wouldn’t be possible to backdate them or to change them. This was like a notary.
Therefore this database allows us to do our transactions securely thanks to cryptology. Blocks are being created and they contain our info which was encoded in order to stay safe from the adversaries. A blockchain is simply a distributed ledger that is completely open to anyone using the highest level of cryptology.
What is a ledger?
Just imagine somebody sends 1 BTC to another person. All the details containing balances of these two people before and after the transaction are kept in a notebook and this notebook is called a ledger. This system prevents us from the double-spending problem which means using the same information twice. Using the same information twice might not be a problem when you’re sending some pictures of your new bike, but it’s a huge deal when it comes to money. The double-spending problem has been one of the most crucial problems the current economic system caused.
Let’s understand how everything works. When a transaction is conducted, it’s posted globally across millions of computers. Not just one but on millions of computers, all using the highest levels of cryptology. Miners get to work, they try to solve tough problems, the first one to solve the problem gets to validate the block and is rewarded with digital currency. Then that block gets linked to another and another resulting in a chain of blocks.
Would you want to take a closer look at a block? Here it is, a simple drawing I did. Don’t underestimate the power of a block.
First, there is the data. Data changes according to the ecosystem. It might include details regarding the transaction, the parties, and the amounts. Another fundamental thing is the hash. A block contains both the hash and the previous block’s hash. Hash is like a code, it’s a unique combination of letters and numbers. They are created according to a cryptographic hash function and they allow us to create a fixed-length hash for each size of data. This is like a fingerprint and it identifies the block and the content. The third element is the hash of the previous block. This is the element that creates the chain.
Thanks to the hash of the previous block, a chain is created. This is the thing that makes it secure. Once a block is created, its hash is calculated. Changing something inside the block will result in changing the hash as well.
It’s simple, if the fingerprint changes, then it’s no longer the same block.
Hashes are useful when it comes to detecting changes regarding the previous blocks. You see, everything is in order and there’s no problem. Blocks are in order, the chain is issueless.
Let’s see what happens when somebody changes something with a block. The second block in the chain has the hash of the previous block, and also its own hash. After the fingerprint changes, its hash is calculated again. Therefore, the following block has the wrong hash for the previous block.
The chain of blocks is now broken, this works like the butterfly effect. If you change something regarding a block from the past, everything has to change. The adversaries have to change every single detail in that chain to make everything right again. To be able to prevent these kinds of changes and prevent corruption, there is this thing called the proof of work.
This system basically slows down the creation of new blocks and prevents corruption. Speaking of the bitcoin ecosystem, a block gets created every ten minutes and the block contains all the transactions from the previous 10 minutes. If you’d like to change something about a block from the past, then you’ll have to do the proof of work for each following block. And you have to get verified for each block. This is almost impossible.
This method makes it hard to change the previous blocks. Someone intending to hack one block has to hack all of the preceding blocks, therefore the entire history of commerce on that blockchain. If you change something, then you have to change everything regarding the following blocks. The security comes from the system’s features, the hashing, and the proof of work mechanism. And another reason why blockchain is secure is the fact that it’s being distributed.
From a technical point of view, the Blockchain is defined as a distributed and replicated database that allows secured transactions without the need of a central authority that validates the transactions, and therefore Blockchain could be seen as a decentralized autonomous organization (DAO). This organization could run completely autonomously, decentralized, transparent, and secure thanks to the Blockchain. (14, Mirò)
Instead of a central authority to handle and manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join. It gives its users the ability to do transactions without any central authority.
What about Peer-to-peer? What’s that? To have a better understanding of the system, let’s have a look at the first 3 layers of the internet. Just a simple overview, nothing serious.
- Ethernet: It was 1974, back then, this meant two computers computing.
- TCP/IP: This meant multiple computers computing.
- HTTP: This meant communicating web content.
The last one required an authority, a centralized system in which people could download to, and upload from the web. It was the era in which digital payments started. But there were several problems in that regard. Such as relying on some kind of central authority, and there was another crucial problem called the double-spending which we’ve mentioned above. Let’s reiterate what we’ve said.
When sending copies of different documents, it might not sound like a problem. But when it comes to money, sending an amount of money twice used to create lots of problems. This can be seen as a piece of knowledge being used twice, doesn’t sound bad when it’s put like that, but believe me, it is.
Other than that, there is the issue of privacy, because an authority owns our information. And they’re slow and expensive. In the event of them being hacked, terrible things can happen.
Therefore, we needed a whole new system where these problems get solved. Fortunately, Satoshi Nakamoto published the famous Bitcoin white paper in 2008. The first sentence of the Abstract as follows:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Remember HTTP? It was a system where people could download or upload data via a client-based server. That meant that the data was being stored in the server. This makes us think about the reliability and the privacy issues. In the paper, Nakamoto talks about the P2P system in which the data is being sent from one peer to another directly, without being stored in a server. This was a breakthrough when it comes to the ‘double-spending problem’.
How does the Peer-to-Peer system work?
When someone joins, he gets the full copy of the blockchain. Then when a new block is being created, the new block is sent to everyone on the network. Each person verifies the block to make sure that it hasn’t been tampered with. If there’s no problem, each node adds this block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which aren’t.
To be able to tamper with a blockchain, you’ll need to tamper with all blocks on the chain, redo the proof of work for each block and take control of more than 50% of the p2p network. This is almost impossible to do.
Why is Blockchain secure?
The security comes from the system’s features, the hashing, and the proof of work mechanism. And another reason why blockchain is secure is the fact that it’s being distributed. Briefly, ledger distribution, proof of work, and the hash system make it secure.
Blockchain technology is now being used for different areas such as medical records, finance options, and expected to be used for so many areas including e-notary, voting systems, and so forth.
After all these superficial summaries about the blocks and their chains, I’d like to finish this article with a song from a band I like, since it’s not much of a formal article now, is it?
All the best, dear chains!
- consensus | Origin and meaning of consensus by Online Etymology Dictionary. (2021). Etymonline. https://www.etymonline.com/word/consensus
- Miró, J. G. (2016). Blockchain and the case of Spanish banks. What Is Blockchain?, 13–14. https://kth.diva-portal.org/smash/get/diva2:943967/FULLTEXT01.pdf
- MIT OpenCourseWare. (2020a, January 23). Blockchain Basics & Cryptography [Video]. YouTube. https://www.youtube.com/watch?v=0UvVOMZqpEA
- MIT OpenCourseWare. (2020b, January 23). Introduction for 15.S12 Blockchain and Money, Fall 2018 [Video]. YouTube. https://www.youtube.com/watch?v=EH6vE97qIP4&t=5s
- MIT OpenCourseWare. (2020c, January 23). Money, Ledgers & Bitcoin [Video]. YouTube. https://www.youtube.com/watch?v=5auv_xrvoJk&t=1s
- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. SSRN Electronic Journal. Published. https://doi.org/10.2139/ssrn.3440802
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