A blockchain, originally block-chain, is a growing list of records called blocks, that are linked using cryptography Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer or end to end protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the consensus of the network majority. Although blockchain records are not unalterable, blockchains may be considered the secure design and exemplify a distributed computing system with high Byzantine fault tolerance. Decentralized consensus has therefore been claimed with a blockchain.
Invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency Bitcoin. Bitcoin inspired other applications.
Structure of Blockchain
- Blocks: Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree. Each block includes the cryptographic hash of the prior block in the blockchain, linking them. Thus the 2 linked blocks form a chain. Any blockchain has a specified algorithm for scoring different versions of the history so that the one with a higher value can be selected over others. Blocks not selected for inclusion are called orphan blocks. Whenever a peer receives a higher-scoring version (usually the old version with a single new block added) they extend or overwrite their own database and retransmit the improvement to their peers. There is never an absolute guarantee that any particular entry will remain in the best version of history forever. Blockchains are typically built to add the score of new blocks onto old blocks and are given incentives to extend with new blocks rather than overwrite old blocks. Therefore, the probability of an entry becoming superseded decreases exponentially] as more blocks are built on top of it, eventually becoming very low. For example, bitcoin uses a proof-of-work system, where the chain with the most cumulative proof-of-work is considered the valid one by the network. There are a number of methods that can be used to demonstrate a sufficient level of computation. Within a blockchain, the computation is carried out redundantly rather than in the traditional segregated and parallel manner
- Block time: The block time is the average time it takes for the network to generate one extra block in the blockchain. Some blockchains create a new block as frequently as every five seconds. By the time of block completion, the included data becomes verifiable. In cryptocurrency, this is practically when the transaction takes place, so a shorter block time means faster transactions. The block time for Ethereum is set to between 14 and 15 seconds, while for bitcoin it is 10 minutes.
- Hard forks: A hard fork is a rule change such that the software validating according to the old rules will see the blocks produced according to the new rules as invalid. In case of a hard fork, all nodes meant to work in accordance with the new rules need to upgrade their software.
If one group of nodes continues to use the old software while the other nodes use the new software, a split can occur. For example, Ethereum has hard-forked to “make whole” the investors in The DAO, which had been hacked by exploiting a vulnerability in its code. In this case, the fork resulted in a split creating Ethereum and Ethereum Classic chains. In 2014 the Nxt community was asked to consider a hard fork that would have led to a rollback of the blockchain records to mitigate the effects of a theft of 50 million NXT from a major cryptocurrency exchange. The hard fork proposal was rejected, and some of the funds were recovered after negotiations and ransom payment.
By storing data across its peer-to-peer network, the blockchain eliminates a number of risks that come with data being held centrally.
Peer-to-peer blockchain networks lack centralized points of vulnerability that computer crackers can exploit; likewise, it has no central point of failure. Blockchain security methods include the use of public-key cryptography. A public key (a long, random-looking string of numbers) is an address on the blockchain. Value tokens sent across the network are recorded as belonging to that address. A private key is like a password that gives its owner access to their digital assets or the means to otherwise interact with the various capabilities that blockchains now support. Data stored on the blockchain is generally considered incorruptible.
Every node in a decentralized system has a copy of the blockchain.
Open blockchains are more user-friendly than some traditional ownership records, which, while open to the public, still require physical access to view. Because all early blockchains were permissionless, controversy has arisen over the blockchain definition. An issue in this ongoing debate is whether a private system with verifiers tasked and authorized (approved) by a central authority should be considered a blockchain.
The great advantage to an open, permissionless, or public, blockchain network is that guarding against bad actors is not required and no access control is needed. This means that applications can be added to the network without the approval or trust of others, using the blockchain as a transport layer.
The analysis of public blockchains has become increasingly important with the popularity of bitcoin, Ethereum, Litecon and other cryptocurrencies A blockchain, if it is public, provides anyone who wants access to observe and analyze the chain data, given one has the know-how. The process of understanding and accessing the flow of crypto has been an issue for many cryptocurrencies, crypto-exchanges, and banks. The reason for this is accusations of blockchain-enabled cryptocurrencies enabling illicit dark market trade of drugs, weapons, money laundering, etc. A common belief has been that cryptocurrency is private and untraceable, thus leading many actors to use it for illegal purposes. This is changing and now specialized tech-companies provide blockchain tracking services, making crypto exchanges, law-enforcement and banks more aware of what is happening with crypto funds and fiat-crypto exchanges. The development, some argue, has lead criminals to prioritize the use of new cryptos such as Monero The question is about public accessibility of blockchain data and the personal privacy of the very same data. It is a key debate in cryptocurrency and ultimately in the blockchain.
- Financial Services
- Decentralized cryptocurrencies,
- Blockchain Healthcare
This post is contributed by Pratik Roychowdhury.