The Blockchain

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It’s a lit­tle com­pli­cated. And it should be – it’s cryp­tog­ra­phy. Ev­ery re­quested trans­ac­tion is pack­aged into a block with a time­stamp, and broad­cast to ev­ery ma­chine on the network, the nodes, to be ver­i­fied. Once it is, the trans­ac­tion goes through, the block is added to the chain, and all nodes are up­dated with the new longer chain. This blockchain is es­sen­tially a list of trans­ac­tions.

To ver­ify a trans­ac­tion, the blockchain must be checked to en­sure suf­fi­cient coins have been added to your ac­count to cover the out­put. These are then not con­sid­ered valid for fu­ture trans­ac­tions. Coins are kept in a wal­let ap­pli­ca­tion, pro­tected by cryp­to­graphic keys – one pub­lic, one pri­vate. Your trans­ac­tion is en­crypted us­ing your pri­vate key and the re­cip­i­ent’s pub­lic one, to en­sure only they re­ceive it, and they know it’s from you.

Be­fore a block can be added to the chain, each must con­tain the an­swer to a com­pli­cated maths prob­lem, cre­ated us­ing a one-way cryp­to­graphic hash func­tion, which es­sen­tially turns in­put into a mass of tan­gled data. To un­lock this re­quires the network to guess a num­ber which, com­bined with the pre­vi­ous block, gives the cor­rect an­swer. Thus, each block is cryp­to­graph­i­cally locked to the pre­vi­ous one.

These puz­zles take con­sid­er­able power to un­lock. To re­ward those who go through the hard work, suc­cess­ful so­lu­tions re­ceive Bit­coins. Each block can con­tain mul­ti­ple trans­ac­tions, lim­ited by the block size: cur­rently 1MB, with typ­i­cally 1,700 trans­ac­tions for a Bit­coin. The dif­fi­culty level is pe­ri­od­i­cally re­cal­cu­lated, to en­sure that se­cu­rity is main­tained, and that each block takes about ten min­utes to process. Ev­ery four years, the block re­ward is halved.

Se­cu­rity is tight. Nodes only ac­cept the long­est ver­i­fied chain, and any er­ro­neous block quickly dis­ap­pears. To force the sys­tem to ac­cept a mod­i­fied trans­ac­tion would in­volve tak­ing on the com­bined math­e­mat­i­cal power of all the nodes. Blockchain tech­nol­ogy isn’t lim­ited to cryp­tocur­ren­cies; coins can rep­re­sent any­thing, such as shares, copy­right registrations, dig­i­tal iden­ti­ties, con­tracts, votes, or any­thing else you want to keep on a se­cure ver­i­fi­able ledger. Or the to­kens can be the data it­self – dis­trib­uted se­cure cloud stor­age is be­ing worked on.

You are go­ing to hear a lot more about blockchain apps in fu­ture, for sure.

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