BlockChain unblocked – Understanding the Technology behind Bitcoin

BlockChain unblocked – Understanding the technology behind Bitcoin

 You might have heard something that’s sounds very interesting to us - “Bitcoin” and also various facts and myths about it. The most fascinating out of which was ‘Investing in Bitcoin will lease interesting high returns.

So, as you are aware about the digital crypto currency Bitcoin, you must also have heard an associated word “BlockChain”.  As the internet has affected all major industries, so is with BlockChain. What is BlockChain and why it is so important? The technology behind Bitcoin is BlockChain.

Bitcoin is a digital cryptocurrency which works on peer to peer network, i.e., distributed systems. There is no centralized system.

If I want to transfer some amount of money to my friend, there is a bank in between that is monitoring this transaction. But in Bitcoin, there is no centralized system to monitor, record, or store the transaction details. Everything is in a distributed manner. In a distributed system, there are two major issues to be concerned

1.       Security

2.       Trust

Security can be achieved at the distributed system using cryptography, or most probably -> asymmetric cryptography.

 But how could I trust that the money is being sent to the right person? What is that which is changing the amount of Bitcoins I have and my friend receives i.e., decrementing and incrementing the BitCoins at the sender and receiver ends respectively.

So that’s where this something called as a Ledger comes into the picture. A ledger can be considered as a file containing the transaction records (or a simple Excel file). But in a distributed network, anyone can tamper it at the node.

If there are 100 people transferring money to each other, each one’s machine can be considered as a node. Ledger is present at every node, this means that every person at these node is able to access the ledger. But we want the ledger to be available at every node but no one should be able to change it.

So, here’s what something called as BlockChain helps to do so. Once you save the data on BlockChain, no one could change it. If it has been changed, you will get to know it. But how? We have a sequence of blocks to store the data related to the transactions.

To ensure security of data inside the blocks, a much useful concept called HASHING is used.

So, what exactly is hashing? Different algorithms are used to generate a simple hash key (hash code)

Some of them are MD-5, SHA-256, SHA-512, etc.

All to do is to run the algorithm on different inputs (Data). If I say, “My name is Akash”, the algorithm will generate a hash key for this data (ex - …………A5CB8N98VNKD8VD88OCF799F……..). The best part is that, the length of the Hash Key is independent of the length of the data and it only depends on the algorithm used. Ex- for SHA-256 we get 256 char hash key. If I change even one letter in the input (My Name is Aksh) the entire hash key will be changed. Thus, by looking at the key it can be recognized whether the data has been altered or not.

 

Thus, block A contains its data and hash key K1.

Block B contains its data and hash key K2 which is combination of A’s data and key K1.

i.e. K2= hash_of (A’s data, K1)

Block C contains its data and hash key K3 which is combination of B’s data and key K2.

i.e. K3= hash_of (B’s data, K2)

Thus, each block knows about its previous block and a chain is created.  Thus, the name is BLOCKCHAIN.

It can be considered similar to a linked list.

But how can one be ensured that there is a trust involved here and no one can change it?

Even a minor change in the data changes the entire hash code. Suppose that the data in block a has been changed by someone. Immediately, B’s key K2 will be changed. As K3 is dependent upon B’s data and K2, the value of K3 is also changed. In this manner, the ledger at each node experiences a change and it can be easily recognized just by looking at the blocks.

There have been many attempts to attack BlockChain, but no one has yet succeeded.

BlockChain can also be used in many other applications rather than Bitcoin such as railways, banks, government data, research data, etc. It will definitely shape the future.