A blockchain is a decentralized, immutable ledger that records transactions across a network of computers. You can think it likes a notebook that everyone can see and update, but no one can erase or change what's already written. That's the idea behind blockchain.
Today we will delve deeper into the inner workings of blockchain technology. I'll explain how blockchain works using simple ideas like:
- Hashing: Turning data into a unique code.
- Blocks: How data is grouped together.
- Mining: The process of confirming and linking these groups.
- Decentralization: How many computers work together to keep everything honest.
This guide will help you understand the basic building blocks of blockchain technology and why it has the potential to change how we manage data and trust in our digital world.
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Hash Algorithm
To understand blockchain, we need to grasp the concept of hashing. Hashing is a process that transforms any input data, regardless of its size or complexity, into a unique, fixed-length string of characters. These inputs can be a text document, an image, a video, or even a complex financial transaction This string, known as a hash, acts as a unique fingerprint for the original data.
This unique hash has several crucial properties:
- Uniqueness: Ensure that each piece of data has a distinct and unalterable identifier.
- Fixed Length: Be efficient in storing and comparing hashes.
- Deterministic: Given the same input data, the hash function will always produce the same hash.
Popular hash functions used in blockchain technology include SHA-256 and Keccak-256 (used by Ethereum). Although different blockchains might use different algorithms, the core principles of hashing remain the same.
Block
A block in a blockchain is like a page in a ledger. It contains three key pieces of information:
- Block Number: Shows the block’s order in the chain.
- Data: Includes details like transaction records, smart contracts, or any other important information.
- Nonce: A unique value that miners must find to create a valid block.
How Does Blockchain Mining Work?
To validate a block, miners (nodes perform mining) combine the block number, data, and a trial nonce value. This combined information is then fed into a cryptographic hash function that represents the entire block's contents.
The crucial aspect of mining lies in finding a nonce that, when hashed with the block's data and number, produces a hash meeting specific criteria. In the case of Bitcoin, the criteria might be to find a hash that starts with a certain number of leading zeros. In Ethereum, the criteria may be different.
Regardless of the specific criteria, the process of finding the correct nonce is computationally intensive and requires significant processing power. This mining process is essential for securing the blockchain network and adding new blocks to the chain. After mining completely, miners should receive some crypto as their rewards (aka. transaction fees).
Blockchain - Linked Blocks
A blockchain is a chain of interconnected blocks. Actually, each block contains data, a block number, a nonce (a unique value), and the hash of the previous block. This creates a continuous chain where each block is connected to the one before it.
The Genesis block, the first block in the chain, has a special case where its "previous hash" points to an arbitrary value, typically a string of zeros.
To validate a block, the block number, data, nonce, and the hash of the previous block are combined and then hashed. This process continues for each subsequent block, creating an unbroken chain of linked hashes.
This interdependency makes the blockchain immutable. If any data within a block is altered, its hash will change. This invalidates the hash of the subsequent block, which then invalidates the next, and so on down the chain.
However, this immutability is only as strong as the control over the blockchain itself. If a single node controls the majority of the mining power, they can potentially alter past blocks by recalculating the chain. This highlights the importance of decentralized control in public blockchains, where the mining power is distributed among many participants, making it significantly harder to manipulate the chain.
Distributed Blockchain
The true power of blockchain lies in its decentralized nature. In a distributed network, multiple independent nodes (peers) maintain their own copies of the blockchain. Each node validates transactions and adds new blocks to the chain independently.
The consensus mechanism ensures that all nodes agree on the valid state of the blockchain. This is achieved by comparing the hashes of the latest blocks across all nodes. If a node attempts to alter past transactions, its resulting hash will differ from the hashes of other nodes. This disagreement triggers a process where the majority of nodes reject the altered chain.
This decentralized approach ensures that no single entity can manipulate the blockchain without the agreement of the majority of network participants. It fosters trust and security by making it incredibly difficult for any individual or group to alter the historical record of transactions.
In a blockchain, transactions are recorded within blocks. Each block includes a set of transactions, and these transactions are incorporated into the block's hash. This ensures that any alteration to a transaction within a block will invalidate the block's hash, and consequently, the hashes of all subsequent blocks in the chain. Therefore, blockchain can be considered a digital ledger.
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Final Thoughts
