A blockchain is a decentralised database that is shared among computer network nodes. A blockchain acts as a database, storing information in a digital format. Blockchains are well known for their critical role in keeping a secure and decentralised record of transactions in cryptocurrency systems like Bitcoin. The blockchain's novelty is that it ensures the fidelity and security of a data record while also generating trust without the requirement for a trusted third party.
The structure of the data on a blockchain differs from that of a traditional database. A blockchain organises data into groupings called blocks, each of which contains a collection of data. Blocks have specific storage capabilities, and when they're full, they're closed and linked to the preceding block, producing a data chain known as the blockchain. All additional information added after that newly added block is compiled into a new block, which is then added to the chain after it is filled.
A database organises data into tables, whereas a blockchain organises data into chunks (blocks) that are strung together, as the name suggests. When implemented in a decentralised manner, this data structure creates an irreversible data time line. When a block is filled, it becomes permanent and part of the timeline. When each block is added to the chain, it is given a specific time stamp.
How Does Blockchain Works?
The purpose of blockchain is to enable for the recording and distribution of digital data without the ability to modify it. In this sense, a blockchain serves as the foundation for immutable ledgers, or transaction records that can't be changed, erased, or destroyed. Blockchains are also known as distributed ledger technology because of this (DLT).
The blockchain concept was first presented as a research project in 1991, and it before its first popular use in use, Bitcoin, in 2009. The creation of numerous cryptocurrencies, decentralised finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts has skyrocketed the use of blockchains in the years thereafter.
Decentralization of the blockchain
Consider a corporation that owns a server farm with 10,000 machines that is used to keep track of all of its clients' account information. This corporation owns a warehouse facility that houses all of these computers under one roof, and it has complete control over each of them and the data they hold. However, this creates a single point of failure. What happens if the power goes out at that location? What happens if its Internet connection is lost? What if it all goes up in flames? What if a bad actor uses a single keystroke to wipe everything clean? The data is either lost or damaged in either situation.
A blockchain allows the data in a database to be distributed across multiple network nodes in different places. This not only adds redundancy to the database, but it also ensures that the data contained there is accurate—if one node of the database is updated, the other nodes are not affected, preventing a bad actor from doing so. If one user tampers with Bitcoin's transaction record, all other nodes will cross-reference each other, making it easy to find the node that has the erroneous data. This system aids in the establishment of a precise and visible sequence of occurrences. This manner, no single node in the network may change the data it contains.
As a result, information and history (such as cryptocurrency transactions) are irreversible. A blockchain can store a range of information, including legal contracts, state identifications, and a company's goods inventory, in addition to a list of transactions (such as with a cryptocurrency).
Who Invented the Blockchain Technology?
Stuart Haber and W. Scott Stornetta, two mathematicians, proposed blockchain technology in 1991 as a way to ensure that document time stamps could not be altered with. Nick Szabo, a cypherpunk, advocated utilising a blockchain to secure a digital payment system known as bit gold in the late 1990s (which was never implemented).
Because of the decentralised structure of Bitcoin's blockchain, all transactions may be examined in real time by running a personal node or using blockchain explorers. Each node has its own copy of the chain, which is updated as new blocks are added and confirmed. This means you could follow Bitcoin wherever it goes if you wanted to.
Exchanges, for example, have been hacked in the past, resulting in the loss of every Bitcoin held on the exchange. While the hacker may remain unidentified, the Bitcoins they stole are clearly traceable. It would be known if the Bitcoins stolen in some of these attacks were relocated or spent somewhere.
The records in the Bitcoin blockchain (and most others) are, of course, encrypted. This means that only the record's owner has the ability to decrypt it and expose their identity (using a public-private key pair). As a result, blockchain users can maintain their anonymity while maintaining transparency.
What exactly is a Blockchain Platform?
Users and developers can use a blockchain platform to build new uses for an existing blockchain infrastructure. Ethereum, for example, has a native cryptocurrency called ether (ETH). 16 However, the Ethereum blockchain also enables for the construction of smart contracts, programmable tokens, and non-fungible tokens, which are utilised in initial coin offerings (ICOs) (NFTs). All of this is implemented on top of the Ethereum architecture and is protected by Ethereum nodes.
How many Blockchains are there?
Every day, the number of active blockchains grows at an exponential rate. There are about 10,000 active cryptocurrencies built on blockchain as of 2022, with hundreds more non-cryptocurrency blockchains.
Is Blockchain a Safe Investment?
In numerous ways, blockchain technology delivers decentralised security and trust. For starters, new blocks are always recorded in a linear and chronological order. That is, they are always added to the blockchain's "end." It is exceedingly difficult to go back and change the contents of a block once it has been appended to the end of the blockchain unless a majority of the network has agreed to do so. That's because each block has its own hash, as well as the hash of the block preceding it and the time stamp described before. A mathematical function converts digital data into a string of numbers and letters, resulting in hash codes. If the data is changed in any way, the hash code will change as well.
Assume a hacker who also manages a node on a blockchain network wants to change a blockchain and steal cryptocurrency from everyone else. If they changed their single copy, it would no longer match the copy of everyone else. When everyone else compares their copies, they'll see that this one stands out, and that hacker's version of the chain will be discarded as invalid.
To succeed with such a compromise, the hacker would have to control and alter 51 percent or more of the blockchain copies at the same time, ensuring that their new copy becomes the majority copy and, thus, the agreed-upon chain. An assault like this would cost a lot of money and resources because they'd have to rewrite all of the blocks because the time stamps and hash codes would be different today.
The expense of pulling off such a feat would almost certainly be impossible, given the scale of many cryptocurrency networks and how quickly they are developing. Not only would this be prohibitively expensive, but it would also be futile. Such actions would not go unnoticed by network participants, who would detect such significant changes to the blockchain. Members of the network would then hard fork to a new version of the chain that was not harmed. This would cause the value of the targeted token to collapse, rendering the attack futile because the bad actor now has control of a worthless asset. If a bad actor attacked Bitcoin's fresh fork, the same thing would happen. It's designed this way so that participating in the network is significantly more financially rewarding than attacking it.