We constantly talk about all the possibilities that the blockchain offers us to carry out our operations immediately, transparently, securely, reliably and without intermediaries. But first of all it is important to understand the basic technical foundations that make all these qualities possible. Blockchain is a decentralized network that stores a record of assets and transactions between peers (Peer-to-Peer or P2P). Let’s dig a little deeper. What is the blockchain?
What is the blockchain?
If we describe it in a simple way, it is a ledger that records all movements between people. Transactions are secured through the use of cryptography. The blocks, which group transactions, are also secured with cryptography and linked in a temporal sequence, creating an immutable record. This record is replicated on every computer using the network: this makes it extremely complicated to manipulate unlike a database controlled by a single entity or central authority. That is one of the substantial differences between centralized and decentralized platforms.
The data contained in a blockchain is arranged in successive blocks, each connected to the previous one. Each block can hold a certain amount of information, and is identified by an alphanumeric digit generated by a hash function. Hash functions are a type of cryptographic algorithm that creates a specific alphanumeric identifier. In the event that the information in a block is altered, even in the slightest, the identifier will also be modified. In this way, the hash number lets you know if a certain set of information has been changed or manipulated. To learn more about hashing and cryptographic security, we suggest you read this article.
Money transmission was its first application: the blockchain was born with Bitcoin. But blockchain can not only be used to send money, blockchain can be used with any other type of digital asset: contracts, securities, certificates, new digital assets or any real-world asset with its digital representation, including personal information.
How the blockchain works
As a first step for blockchain technology to work, it is necessary to create specific software for it. This software allows computers to create the network that will run the blockchain in a distributed manner. Generally, this software is open and protected with free software licenses. This implies that they are public, transparent and can be used, reviewed and contributed to by anyone.
A blockchain network is attributed the characteristic of being a distributed network, since it has no server or localized database. This means that the information is replicated on all computers in the world that are connected to the same blockchain. If more than 50% of the computers that make up the blockchain network do not belong to the same person or company, we can say that the network is decentralized. Therefore, it does not have a center of issuance, power or control.
In each block within the network is stored: a number of valid transactions, information relating to that block and its linkage with the previous block and the next block. This is achieved through the hash of each block ─a unique code that would be like the block’s fingerprint.
Therefore, each block has an immovable and specific place within the chain, as each block contains information from the hash of the previous block. The complete chain is stored in each node of the network that makes up the blockchain, so an exact copy of the chain is stored in all the participants of the network.
As the blockchain is a distributed registry, once the block is mined, all copies are updated and the last block is added to the chain. This is how the transactions included in the block are incorporated into the blockchain and marked. If someone tries to send the same amount of cryptocurrencies twice to two different addresses, only the one that is corroborated first will be valid and the others will be invalidated. Each block has a specific, immovable place within the chain, because the block contains hash information from the previous block. The complete chain is stored in each node of the network and therefore an exact copy of the chain is stored in all the participants of the network.
This is how the blockchain generates a unique record of all valid transactions in the network, in which the nodes are in full agreement. This generates a consensus shared by the entire network.
How is the blockchain composed?
The blockchain is made up of:
- Blocks: a set of confirmed transactions and additional information that has been included in the blockchain. Each block that is part of the chain (except the genesis block, which was the first to start the chain) is formed by an alphanumeric code that links to the previous block, the transaction package and another alphanumeric code that will link to the next block.
- Miners: Computers and/or specialized equipment that mine the bitcoin network. This is used to verify the transactions that take place. Each time someone completes a block they receive a reward in the form of Bitcoins and/or for each transaction that takes place.
- Node: A chip connected to the network using software that stores and distributes an updated real-time copy of the blockchain. Each time a block is confirmed and added to the chain, it is communicated to all nodes and added to the copy that each node stores.
Benefits of the blockchain: security, transparency, stability
In addition to digitizing the ownership of everything of value (whether tangible or intangible), the blockchain allows us, among other things, to create immutable records of property and digital assets that can be transferred between people without having to require an intermediary as in the past. One of the main aspects of blockchains is their strength compared to other types of databases, whose architectures make them more vulnerable. The distributed nature of blockchains makes them more resilient and resistant to potential external attacks. The fact that there is no single point of attack, but that each blockchain exists as a copy on all its nodes, makes the possibility of an attack involving the entire network much more difficult.
Most blockchains are public; this implies that their data is also public and is available and accessible to any user who wants to review it. This is one of the fundamental pillars of decentralized networks and the value they bring to their users.
Stability, on the other hand, is closely related to the number of nodes that make up the network. Thus, the more users, complete nodes and miners a blockchain has, the more stable it will be.
Current and potential future uses
Just as the Internet revolutionized the way we create, transmit and consume information, with blockchain technology we are on the threshold of what is called the Internet of Value or the Internet of Money. Blockchain technology is one of the most powerful tools we have today. Its uses, potential and capabilities are still being discovered. However, the technology has demonstrated its capability in a myriad of uses, radically transforming the way we do things.