Blockchain Basics 4 – A Brief Technical Explanation of a Blockchain

carusovc/ December 24, 2017/ Blockchain, Blockchain Basics/ 0 comments

Have you read Post 3 – The history of Blockchain yet? If not click here!

Introduction

In this final section of the Blockchain Basics series, we plan to give a brief surface level analysis of the technology behind blockchain. This technical explanation of a blockchain will serve as a basis of many of the future articles in the Blockchain Explained Series and is crucial to understanding how a blockchain is applied to real world application. At the end of this explanation, we hope you will have a surface level understanding of how a blockchain functions under the hood and know the key terminology associated with blockchain technology. Let’s get started!

Cryptography

 At the heart of a blockchain is art that is as old as ancient Egyptian Hieroglyphs themselves. Cryptography is the study of writing and solving codes. It has been used to transmit secret information for millennia and is used in almost everything we do today. Blockchain utilizes this same technology to create a secure and dependable ecosystem for the transmission and storage of data.

Cryptography in relation to blockchain is the application of a mathematical algorithm to return a set of numbers and letters representing data. A letter, word, or entire book series could be input into this algorithm and a unique key for each of these pieces of data would be returned. This data could be input on any individual computer anywhere around the world and the output would still be the same. This technique of applying mathematical algorithm is called ‘hashing,’ and it is used to encrypt data that is sent on a blockchain.

The Genesis Block

A Genesis Block is the first block created in a blockchain, often referred to as ‘Block 0.’ A block is a collection of transactions that have occurred on the blockchain and represented the current state of the blockchain world. Blocks can be conceptualized as an individual page of a notebook documenting what the world looked like on the page before it, as well as any new transactions that have occurred. The Genesis Block can be described as the first page of the notebook, often hard coded by the blockchain developers.

The Genesis block contains all the initial transactions and data input by the developers. This data is then input into an algorithm (as mentioned above) and the output is a cryptographic key. While there is no law required the use of a specific algorithm to represent data inside a blockchain, the standard is the SHA-256 algorithm invented by the National Security Agency in 2001.

Once the genesis block is given a cryptographic key otherwise known as a hash, it is marked with a timestamp and sent out into the public blockchain ecosystem. Everyone on the blockchain can see this block including its hash and timestamp but are shielded from seeing the actual data that was used as input. While the block has been published to the world, it has not yet been confirmed and accepted. From here, Miners take over to prove the block valid or invalid.

 

Block Mining

Mining is one of the cornerstones of a blockchain. It is a decentralized method to prove the validity of transactions in a public ecosystem and reward those for their hard work. Without mining, a blockchain would never be able to survive.

Simply put, mining is the process of confirming new transaction records, otherwise known as blocks, to the previous history of the blockchain. The process of mining is very technical with a lot of moving parts. However, the basic theory behind it is quite simple. Mining is the interaction between individuals miners and the blockchain. In order to prove that a block is valid, miners must perform what is referred to a ‘proof’. In the Bitcoin blockchain this proof is termed ‘Proof of Work.’

Proof of Work (PoW) is a repeating process in which miners attempt to guess the correct hash of the input data. Proof of Work is extremely hard to do, yet very easy to prove. PoW can be thought of like trying many different keys to open a lock. Many of the keys may be unsuccessful at first, but when the correct one is found it opens the door easily. PoW requires miners to expend computational and electrical energy in order to find this correct virtual key and confirm a block on the chain. Miners often utilize high tech computers coined as ‘mining rigs’ that can perform the thousands of calculations per second necessary to confirm a block. Hundreds and even thousands of individuals with these mining rigs compete with each other to mine blocks, hoping to be the first once to guess the correct key and receive partial Bitcoins as payment for their hard work.

Without the protections granted by PoW, users could immediately enter any transaction into the ecosystem and with enough computational power, even change the history for the blockchain itself. Proof of Work literally requires users to perform computational and electrical work in order to disincentive these immoral actions. In theory, if an attacker attempted to alter the history of the ecosystem, it would require them an unfathomable amount of computational power, time, and electricity in order to change and re-confirm every historical block. Proof of Work makes it economically unreasonable for an attacker to attempt to change the history of the ecosystem and incentives honest and moral behavior. Once a honest miner performs work and confirms the block, it is added to the blockchain increasing its length, otherwise known as ‘depth’ by one. While Proof of Work is the most common and applied method for mining other blockchains, like the Ethereum blockchain, use other mining methods such as ‘Proof of Stake.’’

Adding to the Blockchain

As transactions occur on the blockchain, they are grouped together and submitted as a block. Blocks are then mined using Proof of Work and added to the ever growing chain. Every block contains the input data as well as the hash of the previous block and a time stamp. Each individual participating in the ecosystem maintains a copy of the blockchain with references to blocks’ hashes and timestamp. Because of consensus, mentioned in part two, users all know the current status and complete history of the blockchain. Although blockchain technology has many complex mathematical and technical steps, at its core it is a repeating process of gathering transactions into blocks and mining them using the Proof of Work protocol.

This concludes the four-part blockchain basics series. For more in-depth explanations of specific blockchain technologies and protocols please check Blockchain Basics explained soon. Thanks for reading!

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