How a Blockchain Works

Today in this article, we will discuss blockchain. We will know what blockchain is, how a blockchain works and what’s the importance of blockchain in today’s digital economy. Let’s start then.

What is blockchain?

Blockchain, as the name suggests, is a chain of blocks, and each block of the chain contains digital information. So, in simpler terms, blockchain is simply a chain of information. Now, we all know that information, specifically digital information, can be backdated, tampered with, and replaced with newer or modified information. Hence, the integrity of the original information becomes questionable. To overcome this problem and to make the digital information tamperproof, a group of researchers in 1991 invented this technology, called “blockchain.” The primary purpose of creating blockchain was to timestamp certain digital information so that nobody can backdate or tamper with the original data. It’s like a notary, once stamped and signed, it’s not possible to tamper with the document.

Though invented in 1991, it was almost hidden from general public knowledge until Satoshi Nakamoto, the creator of the first cryptocurrency bitcoin decides to use blockchain as the working protocol of bitcoin. He created an open distributed ledger based on the blockchain protocol which is entirely open for anyone to view but is virtually impossible (or almost impossible) for anybody or any technology (invented so far) to tamper with the information or data in the ledger. Let’s see how does it work.

How does blockchain work?

I already said a blockchain is a chain of blocks which contains specific information. If we take a closer look at a single block, there are three main elements to be noticed. First is some data, second is the hash of this current block, and the third element is the hash of the “previous” block. Now, what data is being stored in a block? That depends on what type of blockchain we are talking about. If we take bitcoin blockchain as an example, it saves the details of a particular transaction (like sender, receiver, and bitcoin amount) in a block. Now, let’s look at the hash. Hash is like a fingerprint, and it’s unique for every block. If you change the data, the hash will be changed as well; hence the block won’t be validated due to mismatch with the original hash. A block also contains the hash of the “previous” block, the third element. Once a bitcoin transaction is created, it first creates a block which includes the transaction details, and then the hash is being calculated based on the transaction details, and also the hash of the “previous” block is included in this current block. Hence, you can see this is effectively creating a chain of blocks.

How blockchain maintains the integrity of the data?

Let’s say we have a chain of three blocks. The first block, as it’s the starting block, doesn’t contain a hash of “previous” block; hence it’s called “genesis block.” The second and third blocks will have all three elements in each, like the data, the hash of the current block and the hash of the previous block. Hence, we can see that the third block is linked with the second block and the second block is connected with the first block as both third and second blocks contain the hash of the previous block.

Now, if somehow you change the data of the first block, there will be a “new” hash calculated as per the modified data, and it won’t be matched with the hash of the “previous” block (the first block) in the second block. As a result, the second block won’t recognize the first block, and the blockchain won’t accept the first block as a valid block. As we said, a hash is like a digital fingerprint and tampering with data will change the hash too, which will make the whole block invalid and non-acceptable in the blockchain.