A Short Review on Blockchain

Blockchain is a transparent and verifiable system that will change the way people think about exchanging value and assets, enforcing contracts, and sharing data. The technology is a shared, secure ledger of transactions distributed among a network of computers, rather than resting with a single provider. Businesses are using blockchain as a common data layer to enable a new class of applications. Now, business processes and data can be shared across multiple organizations, which eliminates waste, reduces the risk of fraud, and creates new revenue streams.

The three main properties of Blockchain Technology which have helped it gain widespread acclaim are as follows:

1. Decentralization


2. Transparency


3. Immutability

Decentralization

Before Bitcoin and BitTorrent came along, we were more used to centralized services. The idea is very simple. You have a centralized entity that stored all the data and you’d have to interact solely with this entity to get whatever information you required. Another example of a centralized system is the banks. They store all your money, and the only way that you can pay someone is by going through the bank.

The traditional client-server model is a perfect example of this: When you google search for something, you send a query to the server who then gets back at you with the relevant information. That is a simple client-server. Now, centralized systems have treated us well for many years, however, they have several vulnerabilities. Firstly, because they are centralized, all the data is stored in one spot. This makes them easy target spots for potential hackers, if to go through a software upgrade, it would halt the entire system, if somehow shuts down for whatever reason? That way nobody will be able to access the information that it possesses

In a decentralized system, the information is not stored by one single entity. In fact, everyone in the network owns the information. In a decentralized network, if you wanted to interact with your friend then you can do so directly without going through a third party. That was the main ideology behind Bitcoins. You and only you alone are in charge of your money. You can send your money to anyone you want without having to go through a bank.

Transparency

One of the most interesting and misunderstood concepts in blockchain technology is “transparency.” Some people say that blockchain gives you privacy while some say that it is transparent. A person’s identity is hidden via complex cryptography and represented only by their public address. So, if you were to look up a person’s transaction history, you will not see “Bob sent 1 BTC” instead you will see “1MF1bhsFLkBzzz9vpFYEmvwT2TbyCt7NZJ sent 1 BTC”. So, while the person’s real identity is secure, you will still see all the transactions that were done by their public address. This level of transparency has never existed before within a financial system. It adds that extra, and much needed, level of accountability which is required by some of these biggest institutions.

Speaking purely from the point of view of cryptocurrency, if you know the public address of one of these big companies, you can simply pop it in an explorer and look at all the transactions that they have engaged in. This forces them to be honest, something that they have never had to deal with before.

Immutability

Immutability, in the context of the blockchain, means that once something has been entered into the blockchain, it cannot be tampered with. The reason why the blockchain gets this property is that of the cryptographic hash function.

In simple terms, hashing means taking an input string of any length and giving out an output of a fixed length. In the context of cryptocurrencies like bitcoin, the transactions are taken as input and run through a hashing algorithm (Bitcoin uses SHA-256) which gives an output of a fixed length. In the case of SHA-256, no matter how big or small your input is, the output will always have a fixed 256-bits length. This becomes critical when you are dealing with a huge amount of data and transactions. So basically, instead of remembering the input data which could be huge, you can just remember the hash and keep track.

A cryptographic hash function is a special class of hash functions that has various properties making it ideal for cryptography. There are certain properties that a cryptographic hash function needs to have in order to be considered secure. You can read about those in detail in our guide on hashing.

Even if you make a small change in your input, the changes that will be reflected in the hash will be huge.  The blockchain is a linked list that contains data and a hash pointer that points to its previous block, hence creating the chain. A hash pointer is similar to a pointer, but instead of just containing the address of the previous block it also contains the hash of the data inside the previous block. This one small tweak is what makes blockchains so amazingly reliable