In this guide, we’re going to take a look at all you want to know about blockchain technology. We’ll cover what a blockchain is, how it works, if it is impossible to fake data on a blockchain, and what decentralization means.
What is blockchain?
Blockchain can be thought of as an incorruptible digital ledger that can record anything of value. Some people like to think of it as a shared, virtual ‘book’ that can be shared via the internet. Every time a new ‘block’ (book) is created, recording transactions or other records, it is then added to a chain of previous blocks; hence the term block chain (now blockchain).
It’s important to remember that although blockchain and cryptocurrency technology are often spoken about in interchangeable ways, they can and are often separate. Bitcoin and other crypto’s do operate on what we would call a blockchain, but you can have a blockchain by itself—think IBM’s Hyperledger.
How does blockchain technology work?
Each block contains Data, the Hash of the current block, and Hash of the previous block. A hash is similar to a digital fingerprint and it identifies block and all of its contents. A hash is always unique. If something inside the block is changed, the hash is changed to reflect that—making it easy to identify what has been altered.
However, hashes (with the availability of modern computing power) are easily changeable. In order to get around this modern blockchains use a ‘consensus’ mechanism in order to validate transactions/data. With Bitcoin, it’s proof of work. With something like Ripple or Stellar, it’s through trusting a node on the network and building up a web of trust that secures the network.
Blockchain technology can really be thought of as an extension of the connected, public internet, with nodes (computers) helping to check and validate transactions through the chosen consensus method.
Is it impossible to make fake data on a blockchain?
Yes, certainly on a secure blockchain. There have been instances of cryptocurrencies being 51% attacked, which constitutes as ‘fake transaction data’ being created on that currencies proprietary blockchain and is called a double-spend. If the blockchain is secure enough and has enough computers contributing to consensus, then it is impossible to create fake data.
What does decentralization mean?
Decentralization means that the blockchain network is not under a single person, or company’s, control. Just like a private local area network vs the public internet, so too can blockchain networks fall into either category. Bitcoin’s blockchain network, for example, cannot be controlled (despite the efforts of some mining groups/developers). It is therefore decentralized (not owned or controlled by anyone). However, networks’ such as the Ripple protocol, which is privately owned and maintained, are more likely to be centralized.
You can simply think of it as spreading a net, or network, as wide as you can, with as many people helping to maintain the net as possible. The wider the net, with as many people helping, the more decentralized it is.
And there you have it! Our beginner’s guide to all you want to know about blockchain. Make sure to check out our other beginner’s articles over the next few months, as well as our other articles and news stories on everything crypto and blockchain.