A Quick Primer on Everything You Need to Know About Blockchain

Blockchain is a term utilized to represent distributed ledger technology.

Blockchain is used to build a storage system for data in a distributed and immutable mode.

So there are key features we need to mention.

Immutability — this means that once data is written to a blockchain data storage or ledger, it cannot be changed — so it’s there forever. For instance, in a relational database, no matter how much security you have, the data can be accessed and modified on the system.

A blockchain system guarantees that if one bit of data is altered, it says it is in an invalid state, and since the data is distributed on various systems, the verified data with a justified state can be retrieved.

Distribution — is the key to trust. As long as the data you see is in the blockchain and it’s in a valid state, you can trust the data to be accurate. This trust is the key, and this trust is achieved in a blockchain system by replicating the datastore on several hosts on the internet. For instance, as long as the peers accept that bit of data is valid, so you can completely trust that data that is stored on that system.

In blockchain the trust is requisite.

Immutability — Trust

Distribution — valid/invalid

How can Trust Issues be Resolved Using Blockchain?

For many industries, trust is a problem. The automobile industry is one of those where trust, or lack of it, causes problems.

People order used cars from other countries which do not easily share tracking information, and this can mean that faking data about the car’s provenance and history is easier.

For instance, odometer fraud is one of the problems that can seriously impact the value of a vehicle. Representing a vehicle as having been used 5,000 miles instead of 50,000 miles can mean a huge difference in perceived value and potentially usable life span of the car or truck.

In many countries, car service records are largely kept on paper which can, of course, be very easy to be fake.

So, let’s imagine that pushing all service providers to a blockchain and all the readings kept on the Blockchain. The integrity and immutability of the blockchain data mean that a modification of the records would be detectable.

Moreover, agencies such as insurance companies can also contribute by appending accident details of a car, giving a much more complete picture of the vehicle’s history in a way, which is very difficult or even impossible for dishonest vendors to fake.

Why Does the Financial Industry have Trust Issues with Blockchain?

Transferring money from one country to another takes your time and can be expensive because of the need to comply with multiple different regulations and policies, but eventually, another person receives the money.

Your bank updates its records and sends them to the main clearing bank in your country, where they are passed through a number of systems where it analyzes them to prevent money laundering and to comply with various trade embargoes. Assuming your transaction passes the checks, the funds are then sent to another country’s clearing bank.

They again update the record and send it to the receiver’s bank account. Even in these highly automated times, it can take several days for the money to arrive in the destination account.

This is where Bitcoin can offer an alternative to the traditional brick-and-mortar financial industry. All you need to do is to give recipients’ Bitcoin wallet addresses and use your computer system to send funds. There are no middle parties or long waiting times.

To summarize Blockchain:

The data store that keeps all blockchain data is called a ledger.
Each record in the ledger is called a transaction.
These transactions are timestamped and saved in groups of blocks.
You can not update or delete anything. It’s written once and then read-only.
The ledger is built to be immutable using cryptographic algorithms.
And the main part is ledger is replicated by multiple nodes, which is why it is called Distributed Ledger Technology.

How Does Blockchain Achieve and Maintain Integrity?

The system takes a huge data file and computes its unique “digest” using a hash function. Your system then sends that huge data file to your friend/receiving party along with its hashed value.

The receiver recomputes the hash to ensure that the content of that file is not altered while in the transmission.

Multiple standardized hash function implementations are utilized, such as SHA256, which produces a 256-bit hash value. It gives 2²⁵⁶ combinations.

Furthermore, Blockchain utilizes Public Key cryptography which is a cryptographic system used for the encryption and decryption of data.

You start by generating a special, related pair of keys — called a “public” and “private” key — based on a mathematical equation that uses two large prime numbers. Once encrypted, that can be decrypted if you have the required keys.

The public key of both ends of the transmission is used to encrypt the data. At your end, your private key (which is not ever sent or made available to anyone else) is used in conjunction with the receiving party’s public key to encrypt the data.

The receiving end uses your public key and their private key to decrypt the data. Combined with the hash value, transactions like this are incredibly secure.

Public Key Cryptography is also utilized in communication to create a secure connection between hosts and for things like code signing.

What is Blockchain’s Data Structure?

In a blockchain system, data is stored in blocks of transactions. In effect is a huge timestamped log of transactions, which is replicated on multiple peers.

For a blockchain network to be trusted and valid, most of the nodes have to be uncompromised. If 51 percent of the nodes are compromised, the network is hacked and has lost integrity. Note that the Blockchain expects things to go wrong on nodes, and yet it still remains reliable!

Each block in a blockchain represents transactions
If a user tries to add a block containing an incorrect hash value, the block will be rejected by multiple peers and hence will not be made part of the blockchain.