How Blockchain Technology Works?

How Blockchain Works

Blockchain is a secure way to store data, where data is divided into blocks, and the blocks are connected in a chain, hence the name „blockchain“. But let’s see how does blockchain actually work. The best way to explain it would be with an example.

Let’s say that you have bought something from an online shop.

The blocks store information about the purchase, so for example: date, time and the amount.

The blocks also records who is doing the transaction, so in this case it would be you and the online store.

These blocks won’t store your real name, but rather a unique digital signature, something really similar to username.

Each of these blocks also has a unique security code called „hash code“, and each block also contains the hash code of the block before it.

How Hash Codes Keep Records Safe

Hash code is created by a math function that takes digital information and produces a code out of it. We need to know that:

  • Each block has it’s own unique hash code, and the hash code of the block before it.
  • Each hash code is the same size, no matter how large the digital information is.

Here is an example of what hash code could look like:

 

A798404f2f0f479b8f8762694b30184b0d2ed1c1cd2a1ec0fb85d139a922a847

If somebody would try to change just a small piece of the information inside of the block, even if it’s just a comma or spacing, the math function would generate completely new hash code.

 

So for example, the previous hash code would change into something completely different like this:

 

41201cb2aecc43ea67a7e84be6d7252abff7b43959cd728f06c0c7489239166r

So if a hacker would try to change the information inside of the block, the hash code of that block would change, and this would cause the „chain“ to break!

This happened because each block contains 2 hash codes, one hash code is the unique code of that block, and the other hash code is the hash code of the block before it.

 

So, the next block in the chain still has the old hash code of the block before it.

 

In order to restore the chain, a hacker would have to recalculate every block in the chain after it, and that would take enormous amount of computing power, which is why data in the blockchain is almost impossible to change and this is what makes blockchain so secure.

Is Blockchain Private?

Each computer in the blockchain network contains a copy of the blockchain. That means that there are thousands of copies of the same blockchain.

Each copy of the information is completely identical, which makes it much harder to manipulate. So a hacker would have to manipulate each copy of the blockchain on the entire network!

Although transactions on the blockchain are not 100% anonymous, only the digital signatures/usernames are visible to others.

The Computers In The Network

Blockchain doesn’t store it’s information on a single computer/location, instead the information is copied and spread across thousands of computers in the network.

Since there is no single authority that controls the entire network, pretty much anybody can join that network, and members of that network will stay anonymous.

Members Have to Prove Themselves

The problem is that we don’t know if somebody who wants to join the network is trustworthy or not. So, to solve these issues, blockchains have certain tests which new members have to complete in order to join the network.

These tests are called „concensus models“, and they require a network member to prove itself before it can participate in the network.

Bitcoin uses the so-called „proof of work“, where participants have to show that they have completed the task, or in other words „the work“, by solving a highly complex computational task. – This process is called mining.

Ready to get started?

Start by scheduling a FREE Consultation with the expert.

Close Menu