What exactly is blockchain? How is the blockchain built?

Jan 04,2023
What exactly is blockchain? How is the blockchain built?

What exactly is blockchain? How is the blockchain built? The concept of blockchain technology will not only completely change the financial or healthcare industry, but also completely change many aspects of business, government and even our personal life. Now let's learn what blockchain is.

What exactly is blockchain?

From the most basic point of view, a blockchain is a computer file used to store data (information). Like any computer file (including the document you are reading now), it exists on a digital storage medium, such as a computer hard disk. It takes the form of a string of binary "bits", 1 and 0, which can be processed by the computer for human reading.

However, the blockchain has three attributes. Although they are not unique individually, putting them together means that their functions are different from those of other types of computer files.

First, they are distributed. Theoretically, the file containing this article can be simply stored on a computer and can be accessed (i.e. read) by many people through the Internet. On the other hand, blockchain is completely copied on many computers.

This means that no person or entity (such as a company or government) can control the contents of the document. Although anyone who controls the computer that stores the file you are reading can edit it to make any changes they like, the blockchain is not. It is possible to edit a blockchain only when a consensus is reached between computer networks that store different but identical versions of the blockchain. This is due to the second basic innovation of the blockchain - cryptography.

Cryptography – "secret writing" from ancient Greek – basically, the data that constitutes the blockchain is encoded. In order to change the data, or even read it in some cases (depending on the type of blockchain), you need to have a private key corresponding to the correct "block" in the chain (see the next section Blockchain Structure). If you have access to the computer that stores the document you are reading, editing the document is easy. However, if this document is stored in the blockchain, you will need to enter a code to prove that you have the right to make changes. If the code does not match, the other copies of the document will not accept the changes, which are distributed across many (possibly unlimited) other computers, as described above.

The third fundamental innovation is openness. Blockchain is open to some extent. This may mean that "anyone can access it", such as Bitcoin blockchain, or "anyone who has the right to view it can access it", such as blockchain deployed within an organization or enterprise for internal use. This means that anyone on the network can monitor changes to a file, even if they may not have the right to edit it or access all the unencrypted data it contains.

Putting all these elements together means that the "double flower" problem inherent in digital data has been solved for the first time. Because computer files (data) can be copied and shared countless times, it is usually impossible to use them as value storage (such as gold, cash or valuable works of art). This is different for blockchain technology, which leads it to be described as being able to create "value internet".

How is the blockchain built?

The clue is in the name - blockchain is a computer file composed of linked data blocks. Each "block" - can be any size according to the type of blockchain - contains a link to the previous block to form a chain.

It also contains a timestamp to record when the information in the block was created or edited. Finally, it contains the data itself - anything the blockchain is used to record. This may be the "value" of the block. For blockchain currencies such as Bitcoin, transaction data, such as the exchange of goods or services between parties, or ownership, when the chain is used as a record of who owns what.

What's the use of blockchain?

The first blockchain was created by a man named Nakamoto Cong, whose real identity is still a mystery, and formed the basis of the cryptocurrency Bitcoin in 2009. Cryptocurrency is basically a currency that is not issued and controlled by the central bank, such as dollars or pounds, but uses the crypto mathematical blockchain model described above to track the exchange of value and ownership. Since then, thousands of other cryptocurrencies have emerged based on the same principle.

However, people soon found that the application of blockchain technology can go far beyond cryptocurrency, and may be extremely useful for many other applications in many different industries, affecting many different aspects of our lives in business and other places.

In fact, blockchain can be used for anything that needs to record transactions in a secure way. This includes (among countless other potential applications):

1. Store the marriage certificate, business registration, health records and other government records. Governments in countries such as South Korea, Estonia and Dubai are already promoting these concepts.

2. Track the supply chain of goods from manufacturers to distributors to buyers, from food to diamonds. Companies such as Wal Mart and De Beers are already using it to ensure that products in their supply chains come from the right sources.

3. Verify and track the ownership of intellectual property, from recording and tracking the royalties of musicians to the rights of photos and images, just as Kodak is currently developing.

4. Other applications include enabling smart contracts, tracking patient records, digital authentication and signature systems, patent systems, locally produced energy distribution, improving the transparency of charities, frictionless real estate transfer, and so on.

What are the disadvantages and dangers of blockchain?

Of course, like any new technology, from automation to artificial intelligence, blockchain is not without problems and obstacles.

Perhaps most obviously, because computers must "solve" complex cryptography to make data accessible, they usually require a lot of processing power to run.

For example, it is reported that the network power used to track and verify Bitcoin transactions last year was about 30 TW. In contrast, the whole country of Ireland used 24 TW during the same period. This obviously has a high environmental cost, although blockchain supporters say it can be offset by a shift to clean and renewable energy. For this reason, countries like Iceland, which have a large amount of geothermal energy, have become the center of Bitcoin mining activities.

Another potential pitfall is that due to the current hype, blockchain technology is sometimes (promoted by those with vested interests) used as a miracle to solve any business problem. Although blockchains certainly have many interesting and potentially transformative uses, they are not always the right solution.

In general, blockchain may be complex, computationally expensive, and costly to implement. Most importantly, many aspects of their application are still unregulated as policy and legislators are trying to catch up. Therefore, blockchain standards still need to be defined, because many different blockchain protocols are currently competing with each other.