What is blockchain? And What Makes It Secure?
A blockchain, sometimes referred to as Distributed Ledger Technology (DLT), is a public digital ledger in bitcoin or another cryptocurrency maintained across several computers that are linked in a peer-to-peer network. The computers on the blockchain network are linked directly with each other, without an intermediate service like bank or any financial institution. Each "block" in the computer network "chain" contains a number of identical transactions.
Bitcoin is based on blockchain technology. Some people use the terms "Bitcoin" and "blockchain" interchangeably. However, blockchain is not Bitcoin, but the technology behind that runs Bitcoin. This means that Bitcoin can’t run without blockchain, but you can have blockchain without Bitcoin.
A Blockchain is a "chain" of "blocks" which contain similar records of the same information, hence the name. The data contained in the block depends on the type of blockchain. For example, Bitcoin Block contain information about the sender, receiver and the number of bitcoins to be transferred.
The first block in the chain is called the Genesis block. The blocks then connect in a sequence that makes each new block in the chain linked to the previous block.
Each block has three basic elements:
- The data in the block.
- A 32-bit digit called a which is randomly generated when a block is created. This digit is called a nonce and is used to generates a block header hash.
- The hash is a 256-bit number generated by a nonce. The data in the block is signed and secured by the nonce and the hash unless it is mined.
How a block is mined on the blockchain
Miners create new blocks on the chain by mining a block. Mining a block isn’t easy for the following reasons:
- every block has its own unique nonce and hash and also references the hash of the previous block in the chain.
- the nonce is 32 bits and the hash is 256 bits, which means the odds of finding the right nonce-hash combination is roughly one in four billion.
- the right nonce-hash combination must be found in order for the block to be mined.
To find the right combination, miners use special software algorithms to solve complex calculations of finding a nonce that generates an accepted hash. When that happens miners are said to have found the "golden nonce" and their block is added to the chain. Finding golden nonces requires an enormous amount of time and computing power.
However, when a block is successfully mined, the change propagates to all of the nodes on the network and the miner is rewarded financially.
"As a reward for their efforts in validating changes to the shared data, nodes are typically rewarded with new amounts of the blockchain’s native currency—e.g., new bitcoin on the bitcoin blockchain," says Sarah Shtylman, fintech and blockchain counsel with Perkins Coie.
Source : Forbes
What makes Blockchain secure?
The data in a block is secured by a cryptographic hash which is unique to the information in that block and each block contains a hash of the previous block, a timestamp, and transaction data. Any change to the information inside the block causes the hash to change.
The first block, the genesis block, has no predecessor and therefore has no hash of any previous block. However, block 2 contains the cryptographic hash of block 1 and block 3 contains the hash of block 2, and soon.
If an attacker wants to hack the block chain by changing, for example the data present in block 2. The hash of block 2 changes. But, block 3 still holds the old hash of block 2. This invalidates block 3, and all succeeding blocks.
This makes blockchains resistant to modification. Once the data in the blocks is recorded, it cannot be altered without altering all subsequent blocks and regenerating the hashes. No computer or organisation on the blockchain can own or control the the chain. Which means no computer on the change can alter the data with invalidating the hashes and being detected.
Hacking it would mean having to change every block in the chain which is distributed in different computers around the world.