What is a “Blockchain”?

If you’ve been watching the news lately, you may have heard about something called a blockchain. It is a concept that makes data ultra-secure for specific applications. You’ve probably heard it related to Bitcoin, but it has uses that go way beyond everyone’s favorite cryptocurrencies. Here’s a brief explanation of how it works.

It all starts with encryption

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To understand blockchains, you need to understand cryptography. The idea of ​​cryptography is much older than computers: it just means rearranging information in such a way that you need a specific key to understand it. The simple decoder ring toy that you found in your box of Kix cereal is a form of the most basic cryptography: create a key (also known as a number) that replaces a letter with a number, run your message through the key and give the key then to someone else . Anyone who finds the message without the key won’t be able to read it unless it’s “cracked.” The military used more complex cryptography long before computers (the Enigma machine encrypted and decrypted messages during World War II, for example).

However, modern coding is completely digital. Today’s computers use encryption methods that are so complex and so secure that it would be impossible to break them with simple math by humans. However, computer coding technology is not perfect; it can still be “cracked” if smart enough people attack the algorithm, and data is still vulnerable if someone other than the owner finds the key. But even consumer-level encryption, like the AES 128-bit encryption now standard on iPhone and Android, is enough to keep locked data away from the FBI.

The Blockchain is a collaborative, secure data book

Encryption is normally used to lock files so that they can only be accessed by specific people. But what if you have information that needs to be seen by everyone, such as a government agency’s accounting information that must be legally public, yet secure? There you have a problem: the more people can see and edit information, the less secure it is.

Blockchains have been developed to meet the security needs of these specific situations. In a blockchain, every time the information is accessed and updated, the change is logged and verified and then sealed by encryption, and cannot be edited again. The set of changes is then saved and added to the total record. The next time someone makes changes, it starts all over again, keeping the information in a new “block” that is encrypted and linked to the previous block (hence “block chain”). This iterative process connects the very first version of the information set with the newest, so that everyone can see all the changes ever made, but only contribute and edit the latest version.

This idea is somewhat resistant to metaphor, but imagine yourself in a group of ten people assembling a LEGO set. You can only add one piece at a time and you can never remove pieces. Each member of the group must agree on where the next piece will go. This way you can see all the pieces at any time – all the way back to the very first piece in the project – but you can only change the last piece.

For something more relevant, imagine a collaborative document, such as a spreadsheet in Google Docs or Office 365. Anyone who has access to the document can edit it, and every time they do, the change is saved and committed as a new spreadsheet. then locked in the document history. So you can go back step by step through the changes made, but you can only add information to the latest version, not change the earlier versions of the spreadsheet that are already locked.

As you’ve probably heard, this idea of ​​a secure, constantly updated “ledger” is usually applied to financial data where it makes the most sense. Distributed digital currencies like Bitcoin are the most common use of blockchains – in fact the very first was created for Bitcoin and the idea spread from there.

The technical stuff: step by step, block by block

How does all this work on a computer? It is a combination of cryptography and peer-to-peer networking.

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You may be familiar with peer-to-peer file sharing: services like BitTorrent that allow users to upload and download digital files from multiple locations more efficiently than from a single connection. Imagine the “files” as the core data in a blockchain, and the download process as the cryptography that keeps it up to date and secure.

Or, going back to our Google Docs example above, imagine that the collaboration document you’re working on isn’t stored on a server. Instead, it resides on each individual’s computer, who are constantly checking and updating each other to make sure no one has changed the previous records. This makes it “decentralized”.

That is the core idea behind the blockchain: it is cryptographic data that is continuously accessed and secured at the same time, without any centralized server or storage, with a record of changes that embeds itself in every new version of the data.

So we have three elements to consider in this relationship. One, the network of peer-to-peer users who all store copies of the blockchain record. Two, the data these users add to the last “block” of information, allowing it to be updated and added to the overall record. Three, the cryptological strings that the users generate to agree on the last block, and lock it in place in the string of data that makes up the record.

It’s that last bit that is the secret sauce in the blockchain sandwich. Using digital cryptography, each user contributes the power of their computer to solve some of those super complex math problems that keep the record safe. These highly complex solutions — known as a “hash” — resolve core parts of the data in the record, such as which account added or deducted money in a ledger, and where that money went or came from. The denser the data, the more complex the cryptography and the more processing power it takes to resolve it. (By the way, this is where the idea of ​​“mining” in Bitcoin comes into play.)

So, to summarize, we can think of a blockchain as a piece of data that is:

Constantly updated. Blockchain users can access the data at any time and add information to the latest block. Divided. Copies of the blockchain data are stored and secured by each user and everyone must agree to new additions.
verified. Both changes to new blocks and copies of old blocks must be approved by all users through cryptographic verification. Certainly. Tampering with the old data and changing the method of securing new data is prevented by both the cryptographic method and the non-centralized storage of the data itself.

And believe it or not, it gets even more complicated than this… but that’s the basic idea.

The Blockchain in Action: Show Me the (Digital) Money!

So let’s see an example of how this applies to a cryptocurrency like Bitcoin. Let’s say you have one Bitcoin and want to spend it on a new car. (Or a bicycle, or a house, or a small-to-medium-sized island nation – however much a Bitcoin is worth this week.) You connect to the decentralized Bitcoin blockchain with your software and you send your request for your Bitcoin to the seller of the car. Your transaction is then sent to the system.

Everyone on the system can see it, but your identity and the merchant’s identity are just temporary signatures, small elements of the massive math problems at the heart of digital cryptography. These values ​​are plugged into the blockchain equation and the problem itself is “solved” by the peer-to-peer network members generating cryptography hashes.

Once the transaction is verified, one Bitcoin is moved from you to the seller and committed to the last block in the chain. The block is finished, sealed and secured with cryptography. The next set of transactions begins and the blockchain gets longer and contains a full record of all transactions each time it is updated.

If you think of a blockchain as ‘secure’, it is important to understand the context. Individual transactions are safe and the total record is safe as long as the methods used to secure the cryptography remain “uncracked”. (And remember, this stuff is really hard to break-even the FBI can’t do it with computer resources alone.) But the weakest link in the blockchain is you, the user.

If you allow someone else to use your private key to access the chain, or if they find it simply by hacking into your computer, they can make additions to the blockchain with your information, and there is no way to stop them. . This is how Bitcoin is “stolen” in widely publicized attacks on major markets: It was the companies operating the markets, not the Bitcoin blockchain itself, that were compromised. And because the stolen Bitcoins are handed over to anonymous users, through a process that is verified by the blockchain and recorded forever, there is no way to find the attacker or get the Bitcoin back.

What else can blockchains do?

Blockchain technology started with Bitcoin, but it’s such an important idea that it didn’t stay there for long. A system that is constantly updated, accessible to everyone, verified by a non-centralized network, and incredibly secure has many different uses. Financial institutions like JP Morgan Chase and the Australian Stock Exchange are developing blockchain systems to secure and distribute financial data (for conventional money, not cryptocurrency like Bitcoin). The Bill & Melinda Gates foundation hopes to use blockchain systems to provide free, distributed banking services to billions of people who cannot afford a regular bank account.

Open source tools like Hyperledger trying to make blockchain techniques available to a wider range of people, in some cases without the monstrous amount of processing power needed to secure other designs. Collaborating working systems can be verified and recorded using blockchain techniques. Pretty much anything that needs to be constantly captured, accessed, and updated can be used the same way.

Image credit: posteriori/ShutterstockLewis Tse Pui Lung/ShutterstockZack Copley

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