Blockchain is the underlying technology behind sensational digital technology break-through of the past decade like bitcoin, cryptocurrency and NFT. Before learning any of the blockchain products, you need to first understand the technology that makes them happen. How does blockchain work? What problems are they solving? And how can they be applied in the real world?
What is Blockchain?
Blockchain is a type of database system that records information in a way that makes it almost impossible to change. Blockchain was first introduced in 1991 by Haber and Stornetta in their paper called “How to time-stamp a digital document”. It was initially invented as a set of practical procedures for digital time-stampings that prevents anyone from back-date or to forward-date their documents, even with the collusion of a time-stamping service.
Not until 2009 did this invention finally find its utmost usage in the hands of Nakamoto Satoshi, a pseudonym who penned the Bitcoin whitepaper and is identified as the developer of Bitcoin itself. In the whitepaper, Nakamoto offered a new and safe way to conduct digital transactions using an electronic payment system based on cryptographic proof (built on blockchain system) without the interference of financial institutions serving as trusted third parties.
How does Blockchain work?
You can imagine blockchains as a series of blocks each connected to the next. Each block contains a set of information, including data (can be anything but usually used to store transactional information such as identity of the sender, receiver and the amount of transaction), a hash that is unique to each block, and the hash of the previous block.
Hash is a series of special codes created by a math function that turns digital information into a string of numbers and letters. Each block contains a different hash which was created upon the insertion of data. Respectively, if the data inside a blockchain was tampered, its hash will also change. The last element inside a blockchain is the hash of the previous block.
Blockchain means each block has to be “chain”-ed to at least another block. Using the previous hash as its code, each block will follow the previous block and be placed accordingly within the chain.
The hash technology and the chain system ultimately create a secure system for any information stored in each block. In the scenario where the information inside a block changes, it will alter the block’s hash and subsequently make the whole chain collapse because the “previous hash” contained in the next block will no longer match the altered hash.
Blockchain’s application in the real world
Numerous people have tried to invent digital money in the past, but to no avail. The main issue lies in trust. Before blockchains, most databases used SQL systems to operate. This system requires someone in charge to input entries and also have the power to make alterations if necessary. This is where it goes south, how can we trust these people won’t give themselves money, or steal yours for themselves?
With blockchain, however, it is different because every entry, once it is converted into blockchain, cannot be faked, hacked or changed. Thus, people could rest assured that whatever they store inside, be it money or assets, will retain its value and be tamper-proof.
So far, the most popular application of the blockchain system is Bitcoin. However, there have been several attempts to incorporate blockchain databases into other aspects, such as real estate business and medical record storage. Now that you have understood the mechanism of blockchain, it is time to learn about the specific applications of blockchains and start your journey there!