How does the blockchain work?

Here's everything you need to know about blockchain, the backbone of virtually all cryptocurrencies.

Well class, let's start this lesson. Today's topic: The blockchain. Let's go into the merits. Once and for all. 

What is the blockchain?

The first iteration of the blockchain dates back to 1991 and was used by researchers as a method for marking documents. The fact that it was unalterable and very safe is what generated a wider sense of attraction.

After that, it is generally accepted that Satoshi Nakamoto pioneered the use of blockchain in a contemporary sense when, in 2008, he created Bitcoin (quotation in real time). Now Nakamoto is a completely different kettle of fish; it is assumed that Nakamoto is the pseudonym of the person (or persons) who invented bitcoin. Nobody knows who or what Nakamoto is.

How does the blockchain work?

It is used to store data very securely. A blockchain is a 'chain of blocks', it makes sense right? Now we will dive into those blocks. A block contains some things, a bit like an atom does. The blocks contain data, a hash (a kind of fingerprint) and a hash of the previous block.

The data you store can vary enormously. Using bitcoin as an example, the data within a block would generally be the sender, recipient, and amount of bitcoin transferred. The hash, as mentioned, is the block identifier. 

It is always unique for a specific block. If the block is changed entirely, the hash changes. This makes it easy to see exactly where the changes were made, as blocks following the tampered block become invalid. Also, there is something called "proof-of-work", which slows down the speed at which blocks are created.

What does proof-of-work do to the blockchain?

It's useful because, if someone tamper with a block, they then have to modify the rest of the blockchain, and it can basically take an infinite amount of time. Basically, you cannot overcome it - you will be discovered. There is also a peer-to-peer network, so people will responsibly stop any dubious changes by checking them out. Unless you can get more than 50 percent of the network to validate your shady work (basically impossible) you can't fiddle with the blocks.

How secure is the blockchain?

A blockchain is essentially a chain of transactions. For example, if you buy bitcoins from someone, it's a block. They bought it or pulled it out somewhere, this is the previous block. If you then buy something, trade your money, or sell your bitcoins to someone else, this creates a new block. Since the transactions are validated by a group of people around the world, you can rest assured that no one is able to tamper with the transaction.

Does it only work with cryptocurrencies?

However, it's not just useful for cryptocurrencies; other applications include tracking the things you sell over time, such as the mileage of a car, signatures added to a contract (this is essentially a smart contract), even voting in elections.

In fact, if the blockchain continues to catch on, it will most likely enter many industries, and especially the banking sector, of course. 

We have already seen this in developing countries such as El Salvador, which became the first nation in the world to approve cryptocurrency as an official form of payment in June. It will also revolutionize cybersecurity, government systems, forecasting, insurance, cloud storage. Virtually everywhere. End of the lesson.