Everything you need to know about blockchain

Group of Business People Using Digital Devices - Everything you need to know about Blockchain

What is blockchain and how does a blockchain work?

Blockchain is a distributed ledger maintaining a permanent and tamper-proof record of transactional data.

So what is blockchain in simple terms?

It’s a chain of blocks of information, with no centralised control.

Or, to put in another way, it’s a way of passing information from A to B in a fully automated and safe manner.

Each block contains transaction data, a timestamp, and a cryptographic hash of the previous block.

Although it remains completely open to any and everyone on the network, ensuring transparency, it’s a secure and cost-effective way to create and manage a distributed database, maintaining records for digital transactions of all types.

For once information is stored on a blockchain, it is extremely difficult to change or alter it.

 

Blockchain and the Bitcoin revolution

Blockchain is often confused with Bitcoin.

Cryptocurrencies such as Bitcoin are digital coins that run on a blockchain.

Indeed, blockchain was originally devised for this very purpose.

However, by allowing digital information to be distributed, but not copied, blockchain technology has created a whole new field of internet transactions and business capabilities.

There are other potential uses for the technology, and numerous applications are being developed.

 

What is blockchain and what are its advantages?

As a decentralised form of record-keeping, blockchain’s potential is almost without limit.

It not only offers heightened security while optimising user privacy.

By removing human or third-party involvement in verification processes, it also offers improved accuracy and reduces costs.

In fact, there are no transaction costs.

It effectively replaces all processes and business models which rely on charging a small fee for a transaction.

The three chief advantages can be listed as:

  • Decentralisation – everyone in the network owns the information
  • Transparency – open source technology allows tracking of all data
  • Immutability – transactions are nonetheless secure, private and efficient

 

How to build a blockchain; the blocks

A transaction process is initiated by the creation of a ‘block’ of digital information.

Millions of computers distributed around the net verify the creation of this block.

The block is made up of a header and data relating to the transactions taking place within a set time period.

  • The date, time, and amount of a purchase
  • The digital signatures, or usernames, of those participating in the transactions
  • The ‘hash’, a unique alphanumericstring setting it apart from every other block

 

How to build a blockchain; the chain

Once this first block has been created, another transaction, in the shape of another block, can be added.

They are secured and bound to each other using cryptographic principles (the ‘chain’).

First, though, a vast network of computers must confirm that the new block’s details, including the transaction’s time, amount, and participants, are correct.

Each new block is then granted its own unique code, based around the previous block’s hash.

Only then is the new block added to the chain and stored in a public database.

It can be referenced in subsequent blocks, but it cannot be changed. If any attempt to change it is made, the hashes for previous and subsequent blocks will also change, disrupting the ledger’s shared state.

(No new blocks will be added to the chain until the problem is solved, typically by removing the unverified block.)

The chain, a unique record with a unique history, is now also publicly available for anyone to view.

 

How does a blockchain work? Blockchain & Decentralisation

The blockchain network has no central authority.

It has no central server.

It’s not prone to censorship.

Instead, a record of transactions is maintained and managed across several computers (each one is called a ‘node’) that are linked in a Peer-to-Peer (P2P) network.

A P2P network partitions its entire workload between equally privileged ‘peers’ holding identical copies of the transactions.

As all copies are simultaneously updated, it eliminates the danger of a Single Point of Failure (SPOF), as it isn’t dependent upon the health, updating or imposed constraints of a single server.

The file sharing (or torrenting) of a peer-to-peer network also enables rapid downloading.

A transaction can take place between two far-spread parts of the world within a few seconds.

 

How does a blockchain work? Blockchain & Transparency

Blockchain instils honesty in the transactions it enables.

Every transaction, remember, is open to public scrutiny.

Moreover, anyone in the transaction chain can keep an eye on every detail of the process.

Everyone involved is accountable for their actions.

It is only personal information, such as a person’s real identity, that is kept private on the blockchain.

The technology itself is almost always open source.

 

How does a blockchain work? Blockchain & Immutability

Whereas centralised data makes an easy target for potential hackers, it’s unlikely that anyone could make a change to a blockchain without it being noticed.

There are millions of computers on the blockchain network at any given time.

Besides, as we’ve seen, a recorded transaction can’t be altered retroactively, without the alteration of all subsequent blocks.

The connection of blocks through their unique hash keys makes blockchain secure.

 

How to build a blockchain: next steps

It may be a relatively new name in the world of technologies, but new applications for blockchain are being discovered and tested with each passing day.

Many industries have already started adopting blockchain within their businesses.

Many are still exploring the best ways to use it.

Would you like to know more, and be regularly kept up to speed, on what’s coming next in blockchain?

Then the go to webinar site is here. Step inside our roundtable discussions between blockchain’s top thought leaders, innovators and industry experts.

Previous discussions include:

 

What every technical leader needs to know about blockchain, Part 1

Join top technical leaders from the IBM Blockchain team as they outline key differences between permissioned blockchain for business and public applications like Bitcoin.

 

What every technical leader needs to know about blockchain, Part 2

Hear how businesses and industries can collaborate to reinvent themselves with IBM Blockchain.

 

Unleashing the power of your group

See Jerry Cuomo, IBM’s Vice President of Blockchain Technology, deliver his IBM Think 2018 keynote.

 

You can also discover how blockchain’s promise is real and ready for your and your clients’ businesses.

Watch the webinars now and sign-up for a 6-month free trial of IBM Blockchain here.

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