What is Blockchain?

A blockchain may be a special sort of database. You’ll even have heard the term distributed ledger technology (or DLT) in many cases, they’re pertaining to an equivalent thing.

A blockchain has certain unique properties. There are rules about how data are often added, and once the information has been stored, it’s virtually impossible to switch or delete it.


Data is added over time in structures called blocks. Each block is made on top of the last, and includes a bit of data that link back to the previous one. By watching the foremost up-to-date block, we will make sure it’s been created after the last. So if we continue all the way down the “chain,” we’ll reach our very first block referred to as the genesis block.

To analogize, suppose that you simply have a spreadsheet with two columns. Within the first cell of the primary row, you set whatever data you would like to carry.

The first cell’s data is converted into a two-letter identifier, which can then be used as a part of subsequent input. During this example, the two-letter identifier KP must be wont to fill out subsequent cell within the second row (defKP). This suggests that if you modify the primary input file (abcAA), you’d get a special combination of letters in every other cell. A database where each entry is linked to the last. A database where each entry is linked to the last.

Looking at row 4 now, our most up-to-date identifier is TH. Remember how we said you cannot return and take away or delete entries? That’s because it might be easy for anyone to inform that it has been done, and they’d just ignore your attempted change.

Suppose you modify the info within the very first cell you’d get a special identifier, which might mean your second block would have different data, resulting in a special identifier in row 2, and so on. TH is, in essence, a product of all the knowledge coming before it.

How are blocks connected?

What we discussed above with our two-letter identifiers may be a simplified analogy of how a blockchain uses hash functions. Hashing is the glue that holds blocks together. It consists of taking data of any size and spending it through a function to supply an output (a hash) that’s always an equivalent length.

The hashes utilized in blockchains are interesting, therein the chances of you finding two pieces of knowledge that give the precise same output are astronomically low. Like our identifiers above, any slight modification of our input file will provide a totally different output.


The fact that there are not any known SHA256 collisions (i.e., two different inputs that give us an equivalent output) is incredibly valuable within the context of blockchains. It means each block can point back to the previous one by including its hash, and any plan to edit older blocks will immediately become apparent. Each block contains a fingerprint of the previous. Each block contains a fingerprint of the previous.

Blockchains and decentralization

We’ve explained the essential structure of a blockchain. But once you hear people talking about blockchain technology, they’re likely not just talking about the database itself, but the ecosystems built around blockchains.

As standalone data structures, blockchains are only really useful in niche applications. Where things get interesting is once we use them as tools for strangers to coordinate amongst themselves. Combined with other technologies, and a few theories of games, a blockchain can act as a distributed ledger that’s controlled by nobody.


What this suggests is that nobody has the facility to edit the entries outside the principles of the system (more on the principles shortly). Therein sense, you’ll argue that the ledger is simultaneously owned by everyone: participants reach an agreement on what it’s like at any given moment.

The Byzantine Generals Problem

The real challenge standing within the way of a system like that described above are some things called the Byzantine Generals Problem. Conceived within the 1980s, it describes a dilemma during which isolated participants must communicate to coordinate their actions. The precise dilemma involves a couple of army generals that surround a city, deciding whether to attack it. The generals can only communicate via messenger.

Each must decide whether to attack or retreat. It doesn’t matter whether or not they attack or retreat, as long as all generals agree on a standard decision. If they plan to attack, they’re going to only achieve success if they move in at an equivalent time. So how can we make sure that they will pull this off?

Sure, they might communicate via messenger. But what if the messenger is intercepted with a message that says, “we’re attacking at dawn,” which message is replaced with “we’re attacking tonight”? What if one amongst the generals is malicious and intentionally misleads the others to make sure they’re defeated?


We need a technique wherein consensus are often reached, albeit participants turn malicious or messages get intercepted. Not having the ability to take care of a database isn’t a life-and-death situation likes attacking a city without reinforcements, but equivalent principle holds. If there is no one to oversee the blockchain and to offer users “correct” information, then the users must be ready to communicate amongst themselves.

To overcome the potential failure of 1 (or several) users, the mechanisms of the blockchain must be carefully engineered to be immune to such setbacks. A system which will achieve this is often mentioned as Byzantine fault-tolerant. As we’ll see shortly, consensus algorithms are wont to enforce robust rules.

Why do blockchains got to be decentralized?

You could, of course, operate a blockchain by yourself. But you’d find yourself with a database that’s clunky as compared to superior alternatives. Its real potential are often exploited during a decentralized environment that’s, one where all users are equal. That way, the blockchain can’t be deleted or maliciously appropriated. It is a single source of truth that anyone can see.

What’s the peer-to-peer network?

The peer-to-peer (P2P) network is our layer of users (or the generals in our previous example). There is no administrator, so rather than phoning into a central server anytime they need to exchange information with another user, the user sends it on to their peers.

Consider the graphic below. On the left, Necessary route their message through the server to urge it to F. On the right-hand side, however, they’re connected without an intermediary.

P2P Network

A centralized network (left) vs. a decentralized one (right).

Normally, the server holds all the knowledge that users need. Once you access Binance Academy, you’re asking its servers to feed you all the articles. If the website goes offline, you will not be ready to see them. However, if you downloaded all the content, you’ll load it on your computer without querying Binance Academy.

In essence, that is what every peer does with the blockchain: the whole database is stored on their computer. If anyone leaves the network, the remaining users will still be ready to access the blockchain, and share information with one another. When a replacement block is added to the chain, the information is propagated across the network in order that everyone can update their own copy of the ledger.

What are blockchain nodes?

Nodes are simply what we call the machines connected to the network they’re those that store copies of the blockchain, and share information with other machines. Users did not get to manually handle these processes. Generally, all they have to try to do is download and run the blockchain’s software, and therefore, the rest are going to be taken care of automatically.

Blockchain Node

The above describes what a node is within the purest sense, but the definition also can encompass other users that interact with the network in any way. In cryptocurrency, as an example, an easy wallet application on your phone is what’s referred to as a light-weight node.

Public vs. private blockchains

As you’ll know, Bitcoin laid the inspiration for the blockchain industry to grow into what it’s today. Ever since Bitcoin has started proving itself as a legitimate financial asset, innovators are brooding about the potential of the underlying technology for other fields. This has resulted in a search of blockchain for countless use cases outside of finance.

Bitcoin is what we call a public blockchain. This suggests that anyone can view the transactions thereon, and every one it takes to hitch is an online connection, and therefore the necessary software. Since there are not any other requirements for participation, we may ask this as a permission less environment.


In contrast, there are other sorts of blockchains out there called private blockchains. These systems establish rules regarding who can see and interact with the blockchain. As such, we ask them as permissioned environments. While private blockchains could seem redundant initially, they are doing have some important applications mainly in enterprise settings.

How do transactions work?

If Alice wants to pay Bob via bank transfer, she notifies her bank. Let’s assume that the 2 parties use an equivalent bank for simplicity’s sake. The bank checks that Alice has the funds to perform the transaction, before updating its database (e.g., -$50 to Alice, +$50 to Bob).

This isn’t too dissimilar to what goes on with a blockchain. After all, it’s also a database. The key difference is there isn’t one party performing the checks and updating the balances. All the nodes must roll in the hay.

If Alice wants to send five bitcoins to Bob, she broadcasts a message saying this to the network. It won’t be added to the blockchain immediately nodes will see it, but other actions must be completed for the transaction to be confirmed.

Once that transaction is added to the blockchain, all of the nodes can see that it’s been made. They’ll update their copy of the blockchain to reflect it. Now, Alice can’t send those self same five units to Carol (thus, double-spending), because the network knows that she’s already spent them in an earlier transaction.

There’s no concept of usernames and passwords public-key cryptography is employed to prove ownership of funds. To receive funds within the first place, Bob must generate a personal key. That’s just a really long random number that might be virtually impossible for anyone to guess, even with many years at their disposal. But if he tells, anyone his private key, they’ll be ready to prove ownership over (and therefore spend) his funds. So, it’s important that he keeps it secret.

What Bob can do, however, is derive a public key from his private one. He can then give the general public key to anyone because it’s near-infeasible for them to reverse-engineer it to urge the private key. In most cases, he’ll perform another operation (like hashing) on the general public key to urge a public address.

Blockchain Transaction

He’ll give Alice the general public address in order that she knows where to send funds. She constructs a transaction that says pay these funds to the present public address. Then, to convince the network that she isn’t trying to spend funds that aren’t hers, she generates a digital signature using her own private key. Anyone can take Alice’s signed message and compare it together with her public key, and say with certainty that she has the proper to send those funds to Bob.

About author

Experienced Founder with a demonstrated history of working in the newspapers industry. Skilled in Data Research, Management, Investment Research, Teamwork, and Leadership. Influencing the technology, people, and technical analysis of the Cryptocurrency and Blockchain world.
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