Blockchain technology has emerged as the next major element in finance and digital innovation, painted rather forcefully as the new technology. Comedian Stephen Colbert gave the technology the comedic moniker “gold for nerds,” but this is a major trend, a transformative technology with global appeal.
But at its core, a blockchain works as a database. While a blockchain record differs from conventional databases stored on centralized servers, it’s not on a single server but a global network of users’ computers.
The unique structure makes blockchain a distributed database with a peer-to-peer framework. ” Distributed” means that data is spread across multiple places, and “peer-to-peer” means no central authority oversees a master copy of data.
Satoshi Nakamoto’s Bitcoin blockchain attracts attention primarily because Bitcoin was not the first distributed database, the first peer-to-peer system, or the first blockchain concept. Still, it paved the pathway for the first modern cryptocurrency and acted as a blueprint for future blockchain systems.
How does Blockchain Work? Here’s an Example
Suppose you wanted to store information about a poker hand in a database. To begin, we assign a unique number to each card in a deck: for instance, we have 1 = ace of spades, 2 = 2 of spades, 3 = 3 of spades, and so on till 52 = king of hearts. A poker hand might be recorded as follows:
Think of data organization in rows like a spreadsheet. In the world of database professionals, these are known as records, while in the world of blockchain, they are referred to as blocks. In reality, row records or blocks are structured blocks of data.
Let’s say, for example, that your opponent’s poker hand might be in rows 6–10 and that of another in rows 11–15. You only have to say which row contains the first card of a specific hand to identify it.
Establishing Connections Between Data
Multiple users can store data simultaneously in a decentralized peer-to-peer database. For this reason, the cards may not show up in the order of the database. To address this, pointers are introduced to connect the cards and form a chain of linked data:
Let’s say that the first card in your hand, row 15, has a value of 12 (the queen of spades). This is the first card, so there’s not a preceding card in “the Prev card” field for this row, and so it has a value of 0 for “Prev card.” Row 37 stores the next card of the sequence.
Examining row 37 reveals similar details: In other words, it is one card in this card, which refers to the previous card (row 15) and the next card (row 118). The data is organized and traceable in one way; blockchain technology uses a chain of linked rows to ensure the data is kept on a traceable chain.
So, the doubly linked list is just a structure described above in computer science, where data is linked forward and backward. On the other hand, the structure includes pointers that point to the previous and next data points in the database stored alongside the main data (i.e., card values).
Addressing Data Vulnerabilities
The primary issue with this setup is that it can be changed. Anyone in the database could easily change the card numbers without extra protection. For example, they could swap out your first four cards for ones worth 1, 14, 27, and 40, all aces.
An extra layer of protection can be added to stop this kind of manipulation. To do this, you must add a new field to the database that stores a checksum for each row. A checksum is the sum of all the card values up to that time. It is used to make sure that the data is correct. As an example:
- To find the checksum for the second card in your hand, add the numbers of the first two cards, which are 12 and 44. This gives you 56.
- The number for the third card would also be the sum of its value and the values of the cards that came before it.
Differences can show that data has been changed by recalculating and verifying checksums every time it is viewed. The data has been changed if the estimated checksum does not match the stored checksum.
Common Applications of Checksums
Computer technology uses checksum systems very widely to ensure data integrity. It is how memory chips detect errors like those in your computers and smartphones. Like with hard drives, checksums are used to determine if any problems exist.
The Limitations of Basic Checksums
A simple checksum system is effective against accidental injection but not against intentional attacks. With access to the database, hackers could add their changes to both the card values and accompanying checksums. In addition, they could change the ‘previous card’ and ‘next card’ pointers to replace some of the cards in your hand with cards stored in different rows.
Cryptographic Hashing
Blockchain’s inventor, Satoshi Nakamoto, recognized these vulnerabilities and incorporated a more secure method to maintain data integrity and chain links: cryptographic hashing. It is a process to replace basic addition-based checksums with widely advanced cryptographic techniques to tamper proof and make the blockchain structure much more secure.
Using hashing, blockchain technology allows unroutable alterations in the data to be identified and invalidated, invalidating the chain in general. It also acts as a strong mechanism of protection against unauthorized changes.
Understanding Hashing and Encryption in Blockchain Systems
Hashing is a way to make a unique identifier by adding up the values of the most recent and previous records in a one-way mathematical operation. This process creates a hash value, like 5156BECBC019E3F0, that can’t be reversed to return to the original data. Because it can’t be undone, it’s called “one-way.”
In blockchain systems, the hash value of each block is based on the hash value of the block before it. This creates a chain that returns to the first block, Nakamoto’s Block 0. You can find the hash value of a block and match it to the hash value stored in the block to ensure it is correct. If these numbers are different, it means that someone changed the facts.
In standard databases, it is possible to change data, recalculate hash values, and change records after the changes to hide them. On the other hand, this method won’t work with distributed peer-to-peer blockchain networks. To harm these systems, someone would have to change copies of the information simultaneously on hundreds or thousands of separate computers, which is nearly impossible.
This means that new data blocks can be added to the blockchain, but blocks that are already there can’t be changed or removed. This makes sure that events that have already happened, like a Bitcoin transfer, can’t be altered or erased after the fact.
Blockchain’s Core Mechanisms and Challenges
A strong hashing mechanism validates and secures data in blockchain transactions. This transformation converts information to a fixed-length hash (digital fingerprint), ensuring the transaction’s integrity.
Nakamoto enhanced security by implementing encryption protocols that allow all blockchain users to access its data, but only those with the appropriate decryption keys can understand it. If those keys are absent, the data appears as an unintelligible string of characters, keeping the information safe from unwelcome hands.
The Significance of Blockchain Technology
Blockchain is built for various elements, including verifiability, permanence, and privacy. Transaction records are public, but encryption protects the valuable data from tampering or viewing by unauthorized users. Bitcoin’s blockchain, or ‘open ledger,’ exists due to this transparency and security.
However, a secure and decentralized system inevitably requires much computational power, affecting transaction speed. Bitcoin’s blockchain processes 4.6 transactions per second (TPS), a tiny fraction of the average of 1,700 TPS credit card networks or the 56,000 TPS claimed capacity. This indicates a scalability problem that we all know Bitcoin has an issue that computer scientists and researchers face to solve.
Energy Consumption and Network Complexity
Bitcoin’s network consumes massive amounts of electricity over time (i.e., switching from using less energy to using more), reportedly consuming more energy than countries like Switzerland. This network has its full nodes, which include around 250GB of data at a point in time, which are a key component of this network. However, these nodes maintain the reliability and accuracy of the blockchain at the expense of taxing its resources.
The network also includes SPV (Simplified Payment Verification) nodes, which examine discrete transactions and confirm the responsibility for storing the full blockchain. Determining how many nodes make up the Bitcoin network is difficult; experts estimate numbers from 6,000 to 200,000. However, real-time estimates of reachable nodes on platforms like Bitnodes leave the exact number unknown, thanks to the network’s decentralized and dynamic structure.
The Evolution of Blockchain Technology
Although Bitcoin and Ethereum will always remain two foundational pillars of the digital asset ecosystem, smaller chains have opened up a host of benefits that were only recently easily available. At the same time, inspiration for Satoshi Nakamoto’s revolutionary concept has flooded the blockchain landscape, and hundreds, if not thousands, of alternatives have sprung up. The blockchains that run on these can be public, for instance, Bitcoin’s blockchain, or private to coordinate an organization’s internal data management.
Researchers and developers have improved the core of that blockchain framework over time by introducing numerous variations. These adaptations often try to lift the technology to a higher level through faster transaction processing, scalability, or reduction in transaction fees.
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