How Blockchain Technology Works

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Written By: Muhammad Shahzeb ( Researcher, Full Stack Developer )
Blockchain technology is uncommonly popular nowadays. But what is a block-chain? How do they work?

What problems we can solve and the way can this advanced technology be used? As the name indicates, a block-chain may be a chain of blocks that contains information.

blockchain technology

This technique was originally defined in 1991 by researchers’ groups and was originally intended to the time-stamp of digital documents so that not possible to backdate them or do tamper with them. Like a notary.

However, it was unused until it had been adopted by Satoshi Nakamoto in 2009 to make digital cryptocurrency.

bitcoin

Blockchain technology is a distributed ledger that’s completely hospitable for everyone. This technology has a stimulating property once data recorded inside a blockchain in the form of blocks. Then it becomes difficult to vary it.

So how does blockchain technology work?

Let’s take a closer look at blocks. Every block contains some data, hash key of the block, and similarly the hash key of the previous block. The data that’s store inside a block depends on the sort of block-chain.

blockchain technology

The Bitcoin block-chain for instance stores a few transactions, like the bitcoin sender, bitcoin receiver, and amount of coins.

Each block also has a hash value. we can compare a hash value with a fingerprint. This hash value identifies a block, all of its content and always unique, just like a fingerprint. Once a block created, its hash value is being calculated. Whenever temper something inside the block will cause the hash value to vary.

blockchain technology

So, in other words, the hash technique is very useful once you need to detect changes with blocks. If the hash value like the fingerprint of a block change, then it will no longer the same block. The 3rd element inside every block is the hash value of the previous block. So effectively it creates a sequence of blocks and this system creates a block-chain technology very secure.

Let’s take an example.

we have a chain of three blocks here.

genesis block

As we’ll see, every block features a hash value and similarly the hash value of the previous block. So, block number 3 points to block number 2 and the same as number 2 points to the block number 1.

Now the block number 1 is a special one because it is not pointing to any previous block because it is the start point. The first block called the genesis block.

Now for example that if we tamper with block number 2 then this causes the hash value of the block to vary. Similarly, this change reflects the next block that is block number 3 because it holding the hash value of block number 2 and all following blocks will become invalid because they do not store a legitimate hash value of their previous blocks. So, changing in one block will take effect to all following blocks invalid.

But using the hash technique is not enough to prevent blocks tampering. Because Computers nowadays are taking no longer time to calculate many thousands of hash value per second. we could effectively tamper with a block and recalculate all the hash values of other blocks to form a new block-chain valid again.

so, to minimize this, a concept called proof of work which block-chain use. It is a mechanism that slows down the creation of the latest blocks. In Bitcoin’s case it takes round about ten minutes to calculate the specified proof-of-work and add a replacement of block to the chain. This process makes it harder to perform tampering with the chain of blocks, because if we tamper with 1 block, so we need to recalculate the proof-of-work for all the following blocks in the chain.

So, the security of a block-chain comes from its creative use of hash value and by the proof-of-work mechanism. Another way that block-chains secure themselves by the distributed ledger system. Instead of employing a central entity to manage the chain of blocks, block-chains use a peer-to-peer network and anyone is allowed to join.

When someone joins the block-chain network, he/she gets the complete copy of the blockchain distributed ledger.

blockchain technology

when someone creates a new block. That newly created block is shipped to everyone on the network. Each node verifies the block to make sure that it hasn’t been tampered with.

when all things check out then every node adds this checked block to their own particular blockchain. All the nodes in this block-chain network create consensus. They agree about what blocks are valid and which aren’t. Block that tampered with is going to be rejected by other nodes in this network.

So, to successfully tamper with a block-chain we need to tamper with all the blocks on the chain, redo the proof-of-work for each block and take control of more than 50 percent of the peer-to-peer network. If and only if our tempered block will become accept or confirmed by everyone in the network.

This is almost impossible to do! Block-chain technology is also constantly evolving. One of the more recent developments is the creation of smart contracts. These contracts are simple programs that are stored on the block-chain and maybe wont to automatically exchange coins supported certain conditions.

The creation of blockchain technology peaked tons of people’s interest. Soon, others realized that technology might be used for other things.

e.g.

  • Storing records related to medical
  • Digital notary creation
  • Taxes collection
  • Education sector
  • Agriculture sector
  • Banking and finance sector

So we recognize that what a block-chain technology is, and how it works on a basic level and what problems solved.

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