Nov 10, 2021

Blockchain Basics

Bitcoin ushered in a new age of blockchain technology, allowing for faster, less expensive and more secure ways of transacting than previously relied upon.

First conceptualized by Satoshi Nakamoto in 2008, blockchain has grown to become one of the most disruptive technologies of recent time.

Simply, blockchain is a shared immutable ledger that facilitates the recording of transaction in a network. It provides the means for recording any transaction and tracking the movement of any asset and is not just limited to digital currency.

Assets on the blockchain can be tangible or intangible in nature.

Examples include, but are not limited to:

Tangible assets such as cash, precious metals, or real estate.

Intangible assets such as copyrights, intellectual property, or licenses.

So, what makes blockchain different from a database? There are several key attributes to blockchain which makes it unique.

  • Structure
  • Decentralized
  • Append-only
  • Immutable
  • Secure

Data is stored in blocks which are linked together in chronological order forming a continuous chain, or blockchain.

Unlike a conventional database, blockchain is totally decentralized. Typically, a database file is stored on a single system; whereas blockchain is designed to be distributed across a vast network of computers. This peer-to-peer network reduces the ability for data tampering and yields increased transparency since copies of the ledger are stored in every block. Participants are able to securely transact directly, eliminating the need for intermediaries.

Blocks are added to the blockchain based upon a set of rules agreed upon by participants in that particular network. Append-only in nature, valid data may be added however you cannot simply delete or change existing data.

Before a new block can be created, a cryptographic algorithm must be solved. This is called hash function. The computer that solves the hash first shares it with all of the other computers on the network. This is referred to as proof-of-work. The network verifies the proof-of-work and if valid, the block will be added to the chain.

Each block contains its own unique hash, a timestamped batch of valid transactions, as well as the hash of the previous block. The previous block’s hash links the blocks together and so on, preventing the ability to alter the order of the blocks. Attempting to change a block would necessitate a change in all of the previous blocks, thus creating a domino effect. Hence, blockchain’s immutability.

Blockchain technology can be implemented in many ways. How the blockchain is intended to be used will determine whether or not it is public, private, or permissioned.

A public blockchain is open to everyone to view, access and participate in while a private blockchain is closed access only to a select group of authorized participants.

A permissioned blockchain exhibits features of both public and private blockchains. An access control layer is included which allows for the ability to grant special permissions to each participant (i.e., read, and/or access and write).

Only a few key concepts have been outlined above. Be aware there are innumerous additional nuances and potential use cases for blockchain, this is just the tip of the iceberg. Blockchain technology continues to be a major player in the digital transformation, with its full potential yet unrealized.

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