Blockchains for Beginners: How does blockchain function? - @Prof Archie D’Souza

How does blockchain function?

Explained simply for beginners

This is the first in a series of Blockchain for Beginners 

How does one explain blockchain technology to the absolute beginner? At its core, blockchain is a public electronic ledger, keeping information safe on a network of computers. It does not depend on a central authority, such as a government database or a bank. Instead, it shares control with thousands of separate parties. Its framework is designed to be open, decentralized, and virtually unchangeable.

How blocks and chains are formed

Imagine that blockchain is a book. Every page in the book contains a group of transactions. Each page in the book is referred to as a block. After the page is filled with information, it's locked and appended to the last page, building a chain of information. Therefore, the term blockchain is used. Each block in the chain includes a list of transactions, along with a date, and a code that is uniquely identified as a hash. Each block also includes the hash of the previous block. This makes it secure and tamper-proof.

Why decentralisation matters

Blockchain’s main and revolutionary feature is that it is decentralised. It does not rely on a single server or organisation to store and manage the information. Instead, a copy of the entire ledger is distributed among a network of computers referred to as nodes. The entire history of the blockchain is visible in every node. Any attempt to alter one block would result in the alteration of all blocks subsequent to it on over half of the nodes within the system, needing a magnitude of coordination and computer power that is close to impossible. This renders the blockchain highly secure.

How transactions are validated

Whenever a new transaction is made, e.g., transfer of funds, it needs to be validated. This is done through the network. The computers in the blockchain network verify that the transaction is valid and that the sender has sufficient funds. After verification, the transaction is combined with other transactions into a new block. Before the block can be added to the chain, the network first needs to reach consensus, or the majority needs to agree that it is correct. Consensus is achieved through various means, such as proof of work or proof of stake. After agreement, the block is added to the blockchain for good, with no possibility of deletion.

Outside of cryptocurrencies

Cryptocurrencies brought blockchain into the public eye. Yet, as we know now, its potential goes far beyond that. Today it is used, among other things, to make supply chains more transparent, secure digital identities, safeguard medical records, and even boost voting systems. Each block of data is time-stamped and cannot be altered. Therefore, blockchain can establish trust in systems that are dependent on central authorities or middlemen before. This matters a great deal.

To conclude, blockchain is a method of data recording and sharing that eliminates unnecessary intermediaries. Blockchain enables individuals and organizations to exchange value or information in a secure and open manner. For anybody just beginning to venture into the realm of digital currency, knowledge of blockchain is the initial crucial step.