Blockchain Technology

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 Blockchain technology is changing industries around the  world. It’s bringing organizations, governments, financial institutions,  and payment platforms into a new digital age. It’s revolutionizing  everything around us – and yet many people have no idea what blockchain  is or how blockchain technology works.

Today, we’re explaining the core things you need to know about  blockchain and blockchain technology. This guide will keep expanding but  we want to keep it as concise as possible, yet for anyone to learn  anything from beginner to ninja, context must be had. If we could say it  in as few words as possible, it would be none at all and just use  Satoshi's:

// Nodes collect new transactions into a block, hash them into a hash tree,
// and scan through nonce values to make the block's hash satisfy proof-of-work
// requirements. When they solve the proof-of-work, they broadcast the block
// to everyone and the block is added to the block chain. The first transaction
// in the block is a special one that creates a new coin owned by the creator
// of the block.

So if that was all it took to understand (and eventually you will  know what a chain of blocks datachunk was originally) what blockchain  distributed ledger technology is, we would end it here, but it's not so  enjoy our 2018 what is blockchain guide for any and all.

Blockchain is an open, distributed ledger that can  efficiently record transactions between two parties in a verifiable,  permanent way. Blockchain is the technology at the heart of bitcoin and  other cryptocurrencies. Without blockchain, cryptocurrencies would not  exist in their modern form.

Contracts, transactions, and the records of them have long played a  crucial role in our modern world. Our legal and political systems rely  on contracts and transactions for virtually every core function.

Contracts, transactions, and records are used to protect assets or  set organizational boundaries. They’re used to verify identities or  chronicle events.

Every day, the world around us is governed by contracts and  transactions. However, the way in which we record these contracts and  transactions is stuck in the past. These critical tools have not kept up  with the digital revolution.

As one article in the Harvard Business Review explained, “They’re  like a rush-hour gridlock trapping a Formula 1 race car.” That article  goes on to explain that, “In a digital world, the way we regulate and  maintain administrative control has to change.”

That’s why so many companies are seeking to implement blockchain  technology into various industries – the potential benefits are  enormous.

Think of the importance of blockchain like this: much of the world’s infrastructure consists of intermediaries – or middlemen.

We’re not just talking about middlemen like businesses that take a cut of profit for selling goods or services.

We’re talking about lawyers who act as an intermediary between the  public and the law, or bankers who act as an intermediary between  individuals and their access to creditors. There’s a possibility that  lawyers, brokers, and bankers could be made obsolete by blockchain  technology in the future.

Instead of requiring intermediaries, blockchain technology would  allow individuals, organizations, machines, and algorithms to interact  freely with one another.

We’re already seeing this with blockchain and bitcoin. When two  individuals want to exchange bitcoin or other cryptocurrencies, they  don’t go to a bank and pay a hefty transaction fee. They complete a  peer-to-peer transaction over the blockchain.

The blockchain is a distributed ledger that embeds contracts and transactions in digital code.

This digital code – and the record of these transactions – is stored  in a transparent, shared database. This database is decentralized, which  means it’s held by people (“nodes”) all over the world. This  decentralized system protects the blockchain from tampering, deletion,  and revision.

Using the blockchain, everything we do has a digital record. That  means every process, transaction, task, and payment has a digital  record. Each record can also be traced back to an individual: it has a  signature that can be identified, validated, stored, and shared.

Ultimately, this allows organizations or individuals to conduct  business in a more efficient way: with blockchain, we have a  tamper-proof, verifiable, and permanent way to record transactions  between two parties.

There’s enormous hype in the world of blockchain right now.  Blockchain startups are springing up every day. Many are comparing it to  the internet revolution in the early 90s, when companies rushed to take  advantage of the power of this dramatic new invention.

However, some – like the HBR.org article mentioned above – cast doubt  on the ability of blockchain to revolutionize the world. It’s far from a  certain thing.

Some point to security issues outside of the blockchain – like the  infamous 2014 Mt. Gox hack, when users lost $450 million USD worth of  bitcoin.

Others point to the history of technological innovations. With most  major technology changes, there needed to be a substantial  technological, governmental, organizational, and societal change to pave  the way for that technology.

With a change as substantial as blockchain technology, countless  modern institutions would need to fall before blockchain could fully be  implemented.

As the Harvard Business Review explains, “It would be a mistake to  rush headlong into blockchain innovation without understanding how it is  likely to take hold.”

As we mentioned above, blockchain is a distributed, digital ledger.  It’s a peer-to-peer network that lies over top of the internet.

One of the key features of this technology is that it’s a distributed  database. It’s decentralized. The database exists in multiple copies  across multiple computers. Each of these copies is identical. The  computers – or nodes – all form a peer-to-per network, which means  there’s no centralized database or server.

Today, organizations maintain centralized databases and servers where  all their data is held. This makes these servers a lucrative target for  hackers. Blockchain decentralizes data and makes it public but  encrypted. Many people believe this makes it tamper-proof.

When a transaction occurs on the blockchain, data about that new  transaction must be sent to all computers – nodes – on the network. This  means the blockchain stays in sync as one “world wide ledger”. Instead  of having multiple conflicting ledgers, there’s a single version of “the  truth”.

Another  key feature of blockchain is that each transaction on the blockchain is  signed digitally, using public key cryptography. Public key  cryptography involves the use of two keys – a public and private key.  The public key is used to sign and encrypt the sent message, and anyone  can see this key.

However, only the recipient has the private key, which means only the  recipient can decrypt the transaction. Public keys are used for more  than just encrypting messages: they’re also used to authenticate an  identity.

The reason it’s called a blockchain is because it’s literally a chain of blocks.

Each block in the blockchain consists of a list of transactions. Each  block also contains a block header. Headers contain three sets of  metadata, including structured data about the transactions in the block;  a timestamp and proof-of-work algorithm data; and a reference to the  parent block, or previous block, using a hash.

Using these three sets of metadata, each block is chained together – hence the word blockchain.

You may have heard of bitcoin mining. It’s significantly different from traditional mining, to say the least!

Mining is the process by which new blocks are created on the  blockchain. In Bitcoin, a new block is mined every 10 minutes. Some  cryptocurrencies have a faster block transaction time, while others have  a slower time. Essentially, this means that a Bitcoin transaction takes  a maximum of 10 minutes to process.

Mining validates each new transaction on the blockchain. In order to  do that, the miner (which is a computer or processor) solves a unique,  difficult math puzzle. These puzzles require enormous computational  power.

Since Bitcoin was first introduced, the difficulty of these puzzles  has increased exponentially, which means more power than ever is needed  to solve the puzzles.

To put the computational power into perspective, miners were tracked  trying 450 thousand trillion solutions per second to solve the puzzles –  and that was all the way back in October 2015 as reported by The  Economist.

Why would someone spend all this computational power on math puzzles?  It’s because they get rewarded with bitcoin – or other  cryptocurrencies, if you’re mining other cryptocurrencies. Miners  receive a set amount of cryptocurrency for every block that is mined,  along with a cut of the transaction fees for all transactions in the  block.

You could write thousands of pages on the history of blockchain  technology, including all of the minor improvements, major leaps, and  companies formed over the past decade. Instead of boring you with that  information, we’ll give you a brief history of how blockchain technology  came to be what it is today:

The first mention of blockchain can be found in the original source  code for Bitcoin. You can view the original code for bitcoin on Github.

Bitcoin was the world’s first major virtual currency. It was the  first time we saw the impact of blockchain technology on the world  around us.  The currency was officially introduced in October 2008 when a  mysterious figure named Satoshi Nakamoto wrote a paper called,  “Bitcoin: A Peer-to-Peer Electronic Cash System”.

In January 2009, bitcoin’s code was released onto the internet as  open source. Satoshi Nakamoto – whoever that person is – “mined” the  first bitcoins and officially launched the world’s largest  cryptocurrency.

Soon after, in April 2011, Satoshi disappeared from the internet and  stopped contributing to bitcoin forums, papers, or code. Despite  numerous attempts to discover who Satoshi Nakamoto is, and even a few  cases of misidentification, we know nothing about Satoshi to this day  (we’ll talk more about the identity of Nakamoto below).

2013 marked the first year when people really started to hear about  bitcoin. Investors surged into bitcoin and blockchain-related startups.  The price of bitcoin hit a high of $1108 in November 2013 (a high that  has since been surpassed).

Over the years since, other cryptocurrencies have been created. These  coins are called “altcoins” – or alternative bitcoins – because they’re  cryptocurrencies that aren’t bitcoins. Litecoin and Dogecoin were two  of the first to appear, for example. Today, Ethereum holds a solid  position as the number two spot behind bitcoin.

There have been a number of innovations over the history of  blockchain. Without these innovations, blockchain technology wouldn’t be  nearly as useful as it is today. Those innovations include all of the  following:

By nature, this is the first and most obvious blockchain innovation.

The second innovation is when people realized that the underlying  technology behind bitcoin – the blockchain – could be used for more than  just bitcoin.

People realized it could be used for other cryptocurrencies, for  example, or for a wide range of other industries and purposes. This is  where the history of blockchain technology and innovation really took  off.