What is Blockchain
A blockchain is a 'ledger for storing transactions' of cryptocurrencies such as Bitcoin and Ethereum.
Sounds complicated, doesn't it? Let's take a look at a simple example of a bank that you are familiar with using.
Your (A) bank account currently has a balance of 100. This is the value recorded in the bank's data store. What if you transfer 50 to someone (B)? Your balance will decrease from 100 to 50, and the person receiving the transfer will have +50. It is a simple balance change, but if you break down the procedure, it is as follows.
For the transfer, you must go through the authentication process called login using the bank app,
Create a transactionby entering the transfer amount, then
Confirm the transactionwith certificates, passwords, biometrics, etc. (Same as signing a contract.)
- 3.The bank verifies that there is enough balance and
stores the transaction details in the data storage.
- 4.When the transaction details are stored in the data storage, the bank's
users' balances are changed.
The bank is responsible for making these changes to the records in the data store and guarantees the results. What if the bank erroneously records 0 when your balance is actually 100? We use the bank with 'trust' in the sense that we have the belief that the bank will manage it properly.
So how do cryptocurrencies work? Basically, it works similar to the bank example above. Let's take Bitcoin as an example. You have 100BTC in your bitcoin address (similar to your bank account number). If you send 50BTC to B, how should the data storage be changed? A change of -50BTC in your balance and +50BTC in B's balance should occur.
Let's compare it to the previous bank example. First of all, unlike banking systems, cryptocurrencies like Bitcoin do not require a login. This could be an advantage or a disadvantage, but it has nothing to do with understanding the principle, so we'll skip this part. For the transfer, you
Create a transactionwith the detail "A sends 50BTC to B.",
- 2.Send the transaction to the network with a
signature that can confirm you are A, the owner of this account.
- 3.After the transaction is checked for correctness in the network, it gets
stored in the blockchain
- 4.then, the
Bitcoin balance is changed.
Basically, the procedure and principle are the same. The only difference is whether the entity that stores the transaction data is the bank or the Bitcoin network.
You will use your bank with the confidence that the bank will take good care of the data storage and will not tamper with it. On the other hand, the Bitcoin network is not managed by someone who can be trusted, but the system is based on the fact that the transaction history stored in the blockchain is difficult to manipulate. This is what makes the blockchain a reliable repository, without the need for a trusted authority such as a bank. How is this possible?
The figure below shows how the blockchain is structured.
Several transaction details are gathered and appropriately aggregated, and this unit is called a block. Whenever a block is created, compressed information is displayed so that you can know immediately when a manipulated transaction history occurs. This is so that you can know immediately if the compressed information is different, even if you do not compare the entire transaction history. (In jargon, this is called a hash value.) In the figure above, let's assume that the balance that C sends to D in transaction history (TX) #3 is originally 1 BTC. To manipulate the sending amount of TX 3 into 2BTC, this data will be changed. One can easily notice the manipulation because the hash value of the block also changes.
A new block is created whenever there is a transaction history, and the past transaction history is stored (linked like a chain) so that it cannot be forged. Therefore, it can be said that "things stored in the blockchain cannot be manipulated" because it has a structure that can immediately detect when forgery occurs on any of the transaction details.
Based on the fact that data stored on the blockchain cannot be forged or tampered with, the blockchain can serve as data storage that can operate without a trusted authority.
However, it turns out that the structure of the blockchain isn't as fancy or grand as you might have imagined. Does it seem a bit exaggerated to say that blockchain will change the world or become the next Internet? To understand this, we need to understand the characteristics of decentralization along with blockchain. Well, the bank's data storage was managed and operated by the bank, but what about in the blockchain?
In the next part, we will look at decentralization, the biggest core value of blockchain.