A beginner's guide to blockchain

Many people are still unaware of what the blockchain is or how it works. Here, we an attempt to explain the building blocks of blockchain technology to newbies

5Jul

What exactly is a blockchain made up of?

Blockchain was first discovered by the masses due to the hype surrounding cryptocurrencies. Virtually, every crypto asset constitutes its own blockchain and each is meant to serve different markets.

Bitcoin's blockchain was the first in the crypto sphere. Its seemingly unbendable nature and scaling issues prevented other apps from being built on it. This absence of an adaptive platform led to the development of other blockchains like Ethereum and EOS.

To some people, this ledger is made up of transactional blocks only, but that’s not entirely true. As you will see below, a decentralized ledger is more like an engine with many parts in it.

Main parts of a blockchain

Database

The biggest difference between a blockchain database and a traditional database is the level of centralization required for it to function as intended. With a centralized database, the goal is to ensure the servers remain as close to one another as possible to ensure data is transferred with the utmost efficiency.

On the other hand, decentralized databases give up on this desire for speed in exchange for the added utility gained from a database which can be accessed with the ease from anywhere in the world. When this flexibility is combined with the unique aspects of blockchain’s security, which ensure information isn’t going anywhere once it gets in, and its ability to easily sort blocks regardless of where they are coming from, you get a revolutionary new banking system that is secure, autonomous and independent as well.

You can think of a blockchain transferring currency in the same way the internet transmits information.


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Hashes

The data that is stored in each block of a blockchain can be neatly broken into two types; the data the block was created to store, and the data about the block itself. A large amount of this data is going to naturally concern the data that users add to the chain or the cryptocurrency transactions that take place in association with one cryptocurrency or the other. When a block is full and ready to be added to a blockchain, it needs to be verified by a third party to ensure it is legitimate.

Once this is done, the block is then accepted into the blockchain, after being encrypted through a hash function. As such, even if a hacker illegally gains access to the blocks with your personal information in them, they would only be able to see the hash function.

Additionally, this hash function operates as a type of cryptographic fingerprint, which means that if any of the information in the block is changed, the resulting hash will change, as well. The most commonly used hash in the blockchain community is the SHA256 hash.

Once a block is part of the blockchain, its hash is then added to the hash of those blocks around it, and so on and so forth, until the entire blockchain has its own unique hash, which is updated each time a new block is added to the chain. If the details for a block don’t match those of the surrounding blocks, then the new block won’t make it into the chain.

Merkle tree

Merkle tree is the name given to a blockchain process that ensures blockchains can run in a decentralized manner in the first place. It's essentially a functionality matrix that allows the blockchain to verify that everything is intact, in the time duration between the addition of new blocks to the blockchain.

It also makes it easier for vast financial transactions to be broken into chunks which are easier to digest, which makes it possible for users to follow the flow of the trade data as easily as possible.


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The Merkle tree is also a critical part of the security protocols of the blockchain, and while it is possible to build one without the other, those versions tend to be slower and less secure than the preferred version.

The hash that is the sum total of all of the other hashes on the chain is known as the root hash. The Merkle tree is then able to check the root hash as it exists against the most recent root hash that was officially verified, to determine potential discrepancies.

If these discrepancies are found, it then forks its process and continues checking the blockchain as it is, along with the blockchain as it believes it should be, in order to ensure that the overall process is not slowed while the issue in question is dealt with.

Manually verifying this amount of data would be a colossal task if performed by people and that would make blockchain transactions appear to be impossible. The Merkle tree simplifies this process and also limits the amount of data that individual nodes would need to share at any given time, which speeds up the process even more. Every time that a particular hash is flagged in multiple locations, it’s checked and double checked for accuracy across corresponding nodes.

Wrap up

The blockchain is, in itself, a complex topic. Only programmers and developers are capable of completely understanding its depth. For laypersons, understanding what makes up this network and how to leverage its decentralized nature can help anyone transform the way their businesses operate. 

Here's one final piece of advice – blockchain records are permanent so before deploying them, make sure to dispatch pilot programs first.

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