Blockchain explained

Today we often talk about blockchains, but few understand it. Especially in connection with cryptocurrencies like Bitcoins, the term occurs more and more frequently.

As the name implies, a blockchain is a chain of blocks containing information. A block is a transaction and each block contains some data, the hash of the block and the hash of the previous block. The data stored in a block can vary depending on the type of blockchain.

For example, the Bitcoin blockchain, stores details about a transaction, such as the sender, recipient, and number of bitcoins. A block also has a hash. A hash value is always unique and identifies a block and all its contents. Once a block is created, its hash is being calculated. A change within the block leads to a change in the hash value. If the hash value changes, it is not the same block anymore. The third element in each block is the hash of the previous block. This very effectively creates a chain of blocks, and it is this technology that makes a block chain so secure.

Proof-of-work
You could manipulate one block and recalculate the hashes of all other blocks to make the blockchain valid again. To make this more difficult, blockchains have what is called proof-of-work. The mechanism slows down the creation of new blocks. With Bitcoin, it takes about 10 minutes to calculate the required proof-of-work and add a new block to the chain. This mechanism makes manipulation very difficult, because if you manipulate a block, you must also calculate the proof-of-work for all subsequent blocks.

Peer to peer network
But there is another way for blockchains to secure themselves, namely decentralization. To manage the chain, blockchains use a peer to peer network (P2P) instead of a central instance, which anyone can join. A peer to peer network is a computer network in which all computers in the network work together on an equal basis. This means that each computer can offer functions and services to other computers and can also use functions, resources, services and files offered by other computers. The data is distributed across many computers.

Pros

  • Decentralisation
  • Manipulation security
  • Reliability

Cons

  • Currently not yet arbitrarily scalable
  • Others can view the transaction history
  • Power consumption


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