Blockchain: The Basics

Blockchain is one of those once-in-a-generation technologies that has the potential to really change the world around us. Despite this, blockchain is something that a lot of people still know nothing about. Part of that, of course, is because it’s such a new piece of technology that really only became mainstream within the past year. The main reason though, and to address the elephant in the room, is because blockchain is associated with what some describe as “fake internet money” i.e. Bitcoin. I get it; the idea of a decentralized currency with no guarantor is intimidating, but let’s not let that get in the way of what could be a truly revolutionary technology. So, before we get started, let’s remove the Bitcoin aspect and simply focus on blockchain (don’t worry, we’ll pick it back up later on). This is going to be a very high-level description, but we’ll have future additions to unpack the ideas presented in this article.

Blockchain, at its very core, is a database. But blockchains are different from traditional databases in that they are immutable, unable to be changed. Imagine this: once you enter information into your shiny new blockchain you don’t have to worry about anybody going in and messing up all your data (looking at you, Mary in accounting). “But how is this possible?” you might ask.

Blockchains operate by taking data and structuring it into blocks (think of a block like a record in a database). This can be any kind information, from names and numbers all the way to executable code scripts. There are a few essential pieces of information that should be placed in all blocks, those being an index (the block number), a timestamp, and the hash (more on this later) of the previous block. All of this data is compiled into a block, and a hashing algorithm is applied to the information.

HASHING ALGORITHM SHA-256After the hash is computed, the information is locked and you cannot change information without re-computing the hash.This hash is then passed onto the next block, where it gets included in its data, creating a chain. The second block then compiles all of its own data and, including the hash of the previous block, creates a new hash and sends it to the next block in the chain. In this way, a blockchain is created by “chaining” together blocks by means of a block’s unique hash. In other words, the hash of one block is reliant on the hash of the previous block, which his reliant on that of the one before it, ad infinitum.

And there you go, you have a blockchain! “Well what’s so great about that?,” you might ask. Well, before we move onto the next step (which will really blow you mind) let’s recap real quick:

Blockchain: The Basics ChartYou have Block-0. Information is packed into Block-0 and hashed, giving you Hash-0. Hash-0 is passed to Block-1 where is combined with the data in Block-1. So, Block-1’s data now includes its own information and Hash-0. This is now hashed to release Hash-1, and passed to the next block.

The second major aspect of blockchain is that it is distributed. This means that the entire protocol is operated across a network of nodes at the same time. All of the nodes in the network store the entire chain, along with all new blocks, at the same time and in real-time.

Secure Data is Good Data

So, remember earlier when I said a blockchain is immutable? Okay, let’s go back to that. Suppose you have a chain 100 blocks long and running on 100 nodes at once. Now let’s say you want to stage an attack on this blockchain to change Block-75. Because the chain is run and stored across 100 nodes simultaneously, you have to instantaneously change Block-75 in all 100 nodes at the same time. Let’s imagine somehow you are able to hack into those other nodes to do this; now you have to rehash everything from Block-75 to Block-100 (which remember, rehashing is extremely computationally difficult). So while you (the singular malicious node) are trying to rehash all of those blocks, the other 99 nodes in the network are working to hash new blocks, thereby extending the chain. This makes it impossible for a compromised chain to become valid because it will never reach the same length of the original chain.

About That Bitcoin Thing..

Now, there are 2 types of blockchains. Most popular blockchains are public, in which anybody in the world is able to join and contribute to the network. This requires some incentive, as without it nobody would join the network, and this comes in the form of “tokens” or “coins” i.e. Bitcoin. In other words, Bitcoin is an incentive for people to participate and ensure the integrity of the chain. Then there are permissioned chains, which are run by individuals, organizations, or conglomerates for their own reasons and internal uses. In permissioned chains, only nodes with certain permissions are able to join and be involved in the network.

And there you go, you have the basics of blockchain. At a fundamental level it is an extremely simple, yet ingenious idea with applications for supply chain, smart contracts, auditing, and many more to come. However, like any promising new technology there are still questions, pitfalls, and risks to be explored. I’ll be exploring these issues as well as additional applications in upcoming posts. If you have any questions, topic suggestions, or want to discuss the potential for blockchain in your organization, contact us here.