Lately, blockchain technology is on everyone’s lips, not only because of cryptocurrencies, but also because of the capabilities it offers. The term is a rather approximate representation, since it would really be something more like files that store certain information.
What is blockchain
It is a unique record of everything that is happening within a network where all nodes connected to it have a copy. The blocks of a blockchain store information from the block that precedes them and give information to the next block to be created.
Different information is stored within each block. The most important element stored in a block is a certain number of transactions. Additionally, a block can hold other important data, such as the identifier of the previous block, a timestamp or the nonce. It is precisely the block and the elements it stores combined with cryptography that makes blockchain technology secure.
Any attempt to manipulate a transaction in a block stored on the blockchain will be sterile. This is because all the elements of the block are stored mathematically in a hash, which will change if we change any parameter of the block. The network will detect the spoofing attempt and reject it. In addition, the older the block, the lower the probability of tampering, since it would force the alteration of the blocks after the one that has been tampered with.
Origin of blockchain technology
Although Bitcoin and the other cryptocurrencies make use of the blockchain, this technology was not actually developed by Satoshi Nakamoto. The blockchain technology was developed in 1991 by Stuart Haber and W. Scott Stornett. Their first implementation of this technology sought to create a blockchain based on cryptography in which the timestamps of documents could not be manipulated.
Later, in 1992, they improved the system by introducing Merkle Trees, improving efficiency. This mechanism allowed many more documents to be stored in a single block.
Adam Back, in 1997, developed HashCash, an alternative monetary system based precisely on the above precepts. Wei Dai, in 1998, conceptualized B-Mony and in 1998, Nick Szabo, who developed the idea of smart contracts, announced Bit Gold. Both B-Money and Bit Gold were never developed and remained conceptual elements. It should be noted that many believe that Bit Gold served as the basis for the creation of Bitcoin.
Painting the living room
A man enters a paint store and asks the clerk for a one-liter bottle of canary yellow.
The clerk looks up on the computer the color dyes to use and the proportions to convert a can of white into a can of canary yellow. The clerk then adds the dyes to the canister, plus a small amount of paint from an undetermined canister. He closes the jar and introduces it into a machine that shakes it for a while until everything is mixed and we obtain the desired color.
Before handing over the can, the clerk checks that the color is correct and collects a very small sample of the paint. He gives the can to the customer, pays him, and goes home to paint.
From the paint can to the block on the blockchain
According to our example, a block is pretty much the same as a can of paint. The caveat is that in our block there is information instead of paint.
The dyes introduced to the white color to obtain the canary yellow are simply the transactions and other data that are stored in a block. In our example we get a color, but in a block what we get is a hash, a unique identifier based on all the information contained.
Remember the indeterminate pot of paint we added? Well, this paint sample is from the previous client. When a new block is generated, it stores information from the block that precedes it, to prevent a new block from being introduced in between. And the paint sample that it takes before selling the paint can, is the information to generate the next block.
One more thing, do you remember that the customer has paid the seller? Well, when a new block is generated, the miner who created it is paid with new cryptocurrencies that come into circulation and that did not “exist” before.
Characteristics of blockchain technology
There are some elements that must be fulfilled for us to talk about blockchain technology, at least the construction developed for cryptocurrencies. These characteristics are:
- Distributed: Blockchain technology, far from what is usually indicated as a decentralized network, is a distributed technology. All the nodes of the network are equal, they have a copy of the blockchain information and if one of them disconnects it does not affect the network in any way.
- Consensus: For each cryptocurrency there is a set of rules that all members of the network must comply with. These rules establish the functioning of the network and the mechanism for validating transactions and the block generation process.
- Public: All transactions and all network operations are public and can be read by anyone.
- Security: The information of the processes carried out is stored in blocks, preventing the manipulation of information and double spending.
- Immutable: As blockchain technology is based on cryptography, any mere attempt to alter the information in a block is easily detected. Manipulation attempts are quickly detected by the rest of the nodes and the chain or block with the altered information is rejected. This makes it resistant to censorship.
- Permissionless: We are talking about a technology accessible to everyone, where we do not need anyone’s permission to access the network. We simply need to download one of the available wallets and start operating.
- Traceability: It is possible to follow the trace of any transaction made, since the transactions are public. This makes it possible to audit and follow any transaction. It is precisely this parameter that makes cryptocurrencies such as Bitcoin or Ethereum not optimal for illicit activities.
- Privacy: No information is stored about the users operating in the network. Privacy is often confused with anonymity, something that blockchain technology does not offer natively, although it can be achieved in some currencies, such as Monero. Anonymity would be the impossibility of tracing transactions, making it impossible to know the sender and receiver of funds. Within Bitcoin or Ethereum it is possible to know who the sender and receiver are, at least their wallets. Privacy is broken if we reveal that a public key (or address) is owned by us and this can be done through a payment or by using an exchange.
- Open source: The code of blockchain technology is accessible to everyone, as it is published and available to everyone. Anyone can download the code, audit it, modify it and do whatever they want with this code (except profit, of course).
Currently there is much talk of blockchains for private uses, which breaks with many of the aspects described in this section. These “private” blockchains require permission to access to use them, the code is not accessible, they are not distributed networks, there is no ability to trace all movements, and neither are they public, they are not resistant to censorship and lack privacy, since to access these centralized and opaque networks we must identify ourselves.
Would you like to build your own blockchain project? Contact our experienced team today.