Anyone who’s into cryptocurrency, stock market, banking, and investing has probably heard of the term ‘blockchain’. So, what’s this technology that is called blockchain? Why is it used for storing various kinds of digital information?
If you go by its literary meaning, the word ‘blockchain’ is made of two words, ‘block’ and ‘chain’. So its meaning could be derived as a chain of blocks. But, there’s more to the blockchain network. It is a technology that serves as a database used to store several types of digital information. Each ‘block’ contains information and has specifically three parts-
- It stores details such as date, amount, and time of the transaction. For example, your recent transaction from eBay also gets recorded in such a ledger.
- Blocks also store details about the participants in a transaction. So the block that records your transactions on eBay will also record your name and the name of the website, i.e., eBay. But instead of using your name, the block uses a distinctive ‘digital signature,’. It is kind of like a ‘digital ID.’
- Now, each block is different from any other block. And, what differentiates a block from another is a unique code known as ‘hash’. These are cryptographic instructions or codes, developed by complex, specialized algorithms. So, even if you make a similar transaction with the same details, each block can be differentiated since each transaction’s hash is different.
While it might look like, in the above points that a block can only store one transaction, but in reality, a block can store digital information up to 1 Mb. It means that the details of thousands of transactions can be stored in one block.
When we talk about a block storing information, it must also be known that the block has a certain hash assigned to it. A hash is a unique code consisting of numbers and letters that are generated by the block. The basic functioning of a hash involves taking a variable number of characters and converting it into a set of constant characters. So, even a change that might appear to be negligible creates a new hash.
Also, every hash in a blockchain is similar to the hash of the previous block. So, to tamper with the hash of a block, the hashes of all the previous blocks have to be changed. After the block has been hashed, it gets added to the blockchain. Now, every block that is added to the blockchain is in the public domain, and anyone can choose to view it.
‘Nonce’ or ‘a number only used once’ is a number that is used after the hash of a block. Its function, primarily, is to secure a block. If a blockchain miner wishes to solve a hash, this is the number they must discover. It is not easy to find and identify nonce, and this is why they get added to each encrypted hash, to eliminate the competition of less-talented blockchain miners.
Nodes or master nodes are computers that ensure the privacy and validity of any transaction. So, whenever a transaction takes place, it has to be approved by all nodes involved. After each of the nodes has verified the transaction’s validity, there’s a virtual ‘electronic vote’ between the nodes. The validity of the transaction is decided in such a vote.
Every node contains a copy of the blockchain. If the majority of the nodes that are checking the validity of a transaction approve it as original and valid, it gets added to the ledger or blockchain. It ensures a blockchain’s safety, security, and privacy as the nodes would not let any fraud or fake code enter the blockchain network.
- A block is a spreadsheet that contains digital information regarding transactions. A Blockchain is a family of such ‘blocks’.
- Each block can store a fixed number of approved transactions. Once this number is attained, no more transactions can be stored in the block, and a new block is developed.
- The blockchain technology is in-built with a sophisticated algorithm that updates the system every ten minutes.
- Once the blockchain or the distributed ledger has been updated, you cannot tamper with the data stored in it. You can only new blocks with new data.
- The ledger or spreadsheet gets updated on every network and computer.
- Each block in a blockchain generates a hash that is a code unique to the block.
- Hash contains a fixed number of symbols and characters.
- Transactions are added in chronological order in a blockchain.
- The hash depends on the hash of the previous block.
- Nodes are computers that verify and validate each transaction. It secures each block and ensures privacy.
- A blockchain network updates itself on every system in the 10-minute period.