What is a Blockchain?

Introduction

Imagine a massive spreadsheet that is not controlled by one entity but is constantly updated and accessible to everyone. That is fundamentally what a Blockchain is. Though not exactly a spreadsheet (in the traditional sense of the word) and with way more sophistication, a Blockchain is decentralized, distributed, digital ledger that records transactions across a peer-to-peer network such that it is secure, transparent and unalterable, all without the need for any intermediary or central controlling figure.

In this piece, we'll unpack the fascinating history of blockchain technology; look at the key components that make up a typical blockchain; describe what makes up a block in a blockchain; how it functions and the different types of blockchain networks out there.

History of Blockchain

Nowadays, when the word Blockchain comes up, most people think it is a technology totally new and/or it refers strictly to Bitcoin, meaning Bitcoin is the Blockchain (both of which are not true!). The history of Blockchain goes as far back to the early 1990's!

History of Blockchain

Much of what laid out the foundation of the Blockchain as we know of it today started with researches by Cryptographers and Computer Scientists looking to solve pressing issues at the time:

1991

Stuart Haber & W. Scott Stornetta — a Cryptographer and Scientific researcher, respectively — describe a chain of blocks secured by cryptography for the first time in their research paper "How to Timestamp a Digital Document". Their rationale for undertaking the research was to preserve integrity of digital documents because of how easy it was to tamper with them.

1993

Cynthia Dwork & Moni Naor — two prominent Computer Scientists — introduce the beginnings of Proof-of-Work (PoW) concept in an academic paper titled "Pricing via Processing or Combatting Junk Mail". In response to the proliferation of spam and other network abuses, they presented a computational technique for combatting junk mail.

2000

Stefan Konst publishes his theory of cryptographic secured chains in his paper titled "Secure Log Files Based on Cryptographically-linked Entries". His work aimed to answer the question of "how authenticity, order and completeness of the entries in a log file can be guaranteed, concerning the fact that an enlargement of the log file must be possible". Essentially showing that entries in a chain can be traced back to the first log (read: Genesis Block).

2004

Hal Finney — a cryptographic activist — introduces "Reusable Proof- of-Work" which allowed PoW tokens to be reused. This solved the problem of double-spending by keeping token ownership registered on a trustworthy server, allowing users worldwide to verify its correctness and integrity in real-time.

2008

Satoshi Nakamoto — a pseudonym for a developer or group of developers — puts forth a concept of "Distributed Blockchain" in their whitepaper: "Bitcoin: A Peer-to-Peer Electronic Cash System". Building on previous works before now, they introduce timestamping to a chain of blocks, principally addressing the double-spending problem in a peer-to-peer network.

2009

Satoshi Nakamoto launches Bitcoin as a decentralized blockchain without need for intermediaries; mining the first Bitcoin block (Genesis Block) on 3rd January, 2009.

Although there were previous attempts at creating an online currency, Bitcoin solved several issues and has been by far the most successful implementation of a blockchain.

2014

Vitalik Buterin — a Computer Programmer — argued that Bitcoin needed a scripting language for application development, but when he failed to gain agreement, he proposed development of a decentralized application platform with such capabilities; leading to the creation of Ethereum in 2015.

Still in 2014, Blockchain 2.0 is born, highlighting the technology's implementation beyond currencies, giving way to more advanced usesecases in areas like supply chain management, digital identity verification, voting systems, healthcare records, real estate transactions etc.

Key Components of a Blockchain

There are a number of components that make up a typical blockchain; each playing an important role in the overall operation and functionality of the blockchain. These are:

Network of Nodes

Nodes are the computers that maintain copies of the blockchain and verify transactions. Depending on if it stores the entire copy of the blockchain or part of it, they can be Full Nodes or Light Nodes.

Distributed Ledger

This is the blockchain itself, a decentralized ledger where all transactions are recorded in an immutable manner. It is composed of blocks which contains a set of transactions, all linked together cryptographically.

Cryptographic Hash Functions

These are a type of hash functions that have special properties (one-way function, pseudo-randomness, collision-resistant and deterministic). Much like any hash functions, it can take any size of digital input and deterministically and irreversibly output a small, fixed-length unique digital fingerprint which changes dramatically even with a minimal change to the input data. Cryptographic hash functions are applied in blockchains to create unique identifiers (hashes) for blocks and transactions, ensuring data integrity and linking blocks together.

Consensus Mechanism

This is a protocol or algorithm that ensures all network participants agree on the validity of a transaction and maintain a homogeneous state of the ledger. Common consensus mechanisms are Proof-of-Work (PoW) and Proof-of-Stake (PoS).

Blocks

Blocks are the fundamental units of storage in a blockchain — they are the literal "building blocks" of a blockchain. It's primary purpose is to hold/record transactions occuring on the network. Every block has: a date & timestamp, a list of recorded transactions or other data, a unique number called the Height (which signifies the position of the block on the chain), a strange number called Nonce (relevant to mining and finding a valid block), the hash of the previous block in the chain, and other metadata like block size.

What makes up a Block in a Blockchain

The immutable charasteristic of a blockchain comes from the cryptographic linking of blocks in the chain. Each block in a blockchain contains the hash of the previous block (a hash being a unique, fixed-size string of characters that represents the content of the block). If a data within a confirmed block were changed by say, a malicious actor, the hash of that block changes; which in turn would require changing the hash in every subsequent block, resulting in a chain reaction of invalidated blocks.

How a Blockchain Works

A blockchain works by providing a secure, transparent way to record and share data (as transactions) across a network of computers, ensuring trust through collective validation rather than central oversight.

When a new transaction is made on the network, it is broadcasted to a peer-to-peer network consisting of computers, known as Nodes. Each node on the network validates the transaction using known algorithms. Once verified, the transaction (which can involve cryptocurrencies, records, or other digital information) is combined with other transactions to create a new block of data for the chain. The new block is then added to the existing blockchain, in a way that is permanent and immutable, and the transaction is completed.

Types of Blockchain Networks

The way data is accessed and how transactions are conducted on a blockchain is determined by the type of blockchain network applied. These types include: Public blockchain, Private blockchain & Consortium/Shared-permission blockchain; and the decision on which to utilize is influenced by considerations such as transparency levels, security measures and scalability potential.

Public Blockchain

As the name entails, a Public blockchain is a type of blockchain network in which anyone is allowed to participate in the network. It is permissionless — anyone can download the required software onto their computer and become a node. It's public nature permits network participants to read, write, add blocks and audit the network's activities without intermediaries.

Public blockchains are characteristically decentralized, fully transparent and immutable (recorded transactions on the network cannot be easily altered (if at all)). No central authority controls the network, thus public blockchains are highly resistant to takeover attacks. An attacker would need to control 51% of the total hashrate of the network (in the case of Proof-of-Work blockchains like Bitcoin) or 51% of the total staked coins on the network (in the case of Proof-of-Stake blockchains like Ethereum).

Private Blockchain

A Private blockchain is a type of blockchain where the write permissions are restricted to one organization or to a group entities. Unlike public blockchains which are public and open for just anyone to participate in; private blockchains are closed networks and can be thought of as an "exclusive club", where the membership is by invitation only. While it may seem like the setup is elitist, at its core, it isn't.

Private blockchains are about maintaining privacy, security, efficiency and scalability for transactions that do not necessarily need to be broadcast to the entire world. It is not decentralized but operates as a closed database (with built-in charasteristics of blockchains eg. cryptographic audatability). It is of particular use to developers, as they can set up and control their blockchain for testing purposes.

Consortium/Shared-permission Blockchain

Consortium blockchain (also called Shared-permission blockchain) is often described as being a midpoint between Public and Private blockchains — combining the best attributes of each. Anyone can join a consortium blockchain, but only after appropriate identity verification and allocation of selected permissions which ultimately determines the type of activity the participant can carry out on the network. Think of it as a "co-op" where network participants govern together, ensuring no single entity dominates. This setup offers more openness than a private blockchain; and more control that public blockchains lack.

Consortium or Shared-permission blockchain is ideal for industries where collaboration is paramount eg. Supply chains ensuring data integrity between companies.

Key Takeaways

• A Blockchain is decentralized, distributed, digital ledger that records transactions across a peer-to-peer network such that it is secure, transparent and unalterable, all without the need for any intermediary or central controlling figure.
• Blocks in a blockchain hold all the necessary data/transactions written on the network and are linked cryptographically. They contain key information: block height, block hash, date & timestamp, nonce, transactions/data recorded and hash of the previous block.
• The type of blockchain network implemented (Public, Private, or Consortium/Shared-permission blockchain) will determine transparency levels, security measures and scalability potential.

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