Blockchain 101
DEBUNKING THE MYTHS AND MYSTERY AROUND TECH’S NEWEST ENCRYPTION METHOD.
THERE’S NO HOTTER buzzword in IT now than ‘blockchain’. Companies with ‘blockchain’ in their name are receiving massive amounts of investment money and everybody seems to want a piece of that blockchain pie, even though few people seem to actually understand what it is. Mostly, they know it has something to do with Bitcoin, and Bitcoin is the flavour of the month.
So this issue, we thought we’d take a look at blockchain — what it is, and what applications it might have.
WHAT IS A BLOCKCHAIN, ANYWAY?
Simply put, a blockchain is a tamper-proof way of storing data. That’s it — that’s all it is. To explain it better, we need to start with the concept of a cryptographic hash. Much like a checksum, a hash is a mathematical representation of a chunk of data. When you perform a cryptographic hash on a chunk of data, it spits up a string of fixed length that represents that data. For example, if we run an SHA-1 hash (which is a particular type of hash algorithm) on the string: “TechLife May issue”, we get this result:
If we change any element of that string, it completely changes the hash. Let’s just change the letter case, for example, to “techlife may issue”. Now the hash becomes completely different: Data of any size can be hashed in this manner. You can hash a small string like we did above, or a large file. The chances that two different files will produce the same hash are infinitesimally small (as in, so small it would never happen).
Hashes are thus commonly used to verify data. A data file can be sent, then the hash of that data file can be sent separately. If the hash and the file don’t match, then there’s something wrong with the file and it may have been tampered with.
And so we come to blockchains. A blockchain is a series of data blocks that use hashes to verify the integrity of the data.
We start off with a single block of data of arbitrary size. Then when we want to add more data, we create another block. The new block contains a pointer to the previous block, as well as a hash of the data in that previous block. Thus the first block becomes “locked in”, because the data in the first block can never be modified without invalidating the hash in the second block.
Then you can add a third block. It contains a pointer to and a hash of the second block (which itself includes a hash of the first block). Then a fourth and fifth and so on. If any of the data in any block is modified, the hashes will be invalidated and the data registered as corrupted.
And so the data in the blockchain grows as more and more blocks are added. Data in the blocks can never be changed; only new data can be added. A blockchain never shrinks and every bit of data is kept forever in the chain, free from tampering thanks to the chain of hashes that maintain the data integrity.
HOW IS IT USED IN BITCOIN?
Obviously the most famous use of blockchain is in Bitcoin. In Bitcoin and other cryptocurrencies, the blockchain data contains a ledger of Bitcoin transactions. As new transactions are performed, new blocks are added to the blockchain, which contains a complete record of every transaction ever. Because the blockchain is tamper-proof, a hacker couldn’t go back and modify the records — that would
invalidate the blockchain. They would have to completely rewrite the blockchain from scratch, which is not practically possible thanks to the other feature of the Bitcoin blockchain — the fact that it’s distributed using a peer-to-peer network.
The Bitcoin blockchain is a completely public record. Everybody who uses Bitcoin can download the blockchain. When a new transaction is requested (ie, a transfer of bitcoins from one user to another) a series of what are called ‘miners’ goes back through the blockchain and authenticates the transactions, checking to see if the sender has the funds and that everything is on the up and up. Every ten minutes or so, a new block is committed to the blockchain, and they typically contain about 2,000 transactions. The miner who commits it is rewarded with a Bitcoin (which is how new Bitcoins are created).
To go back to our hackers, the only way they could modify the blockchain is by rewriting every block in the chain, and then somehow getting consensus on the changes from the millions of other bitcoin users and miners so that they all agree that the new blockchain is the “real” blockchain. This is virtually impossible.
Because data in the blockchain remains around forever, the Bitcoin blockchain has become quite large, to say the least. In fact, it is currently at about 150GB and it’s only going to get larger.
APPLICATIONS BEYOND CRYPTOCURRENCY
A lot of the buzz surrounding blockchain is about the applications it has beyond cryptocurrency. As yet, none of these applications have really taken off, since in most cases, there are existing non-public alternatives.
In theory, what a public-distributed blockchain can do is record data and transactions between parties in an open and verifiable way. Thanks to the requirement for decentralised consensus, ensuring not one single party has control, these public records would be very hard to falsify.
For example, the Ethereum Project is a platform for using blockchain for a variety of different applications (one of which is the Ether cryptocurrency). It can be used for the creation of markets, for ownership ledgers, digital signatures, the creation of virtual organisations and groups with permissions and powers, for gambling, and even sharedworld video games such as online Dungeons & Dragons sessions that use a blockchain to store and distribute player moves and character data. There are even projects like ZeroNet ( zeronet.io) that plan to use blockchain to replace DNS for navigating the internet.y.
A NEW WAY
To give an example, let’s say we wanted to create a free, public alternative to Uber. We create a blockchain that contains ride requests and acceptances and transaction records, possibly with a cryptocurrency payment system. A new ride request could be uploaded to the blockchain within minutes, and a driver would see the request on the blockchain and could issue an acceptance, which would also be uploaded to the chain. The record of the transaction would be there permanently for all to see.
Of course, such a system would have other problems that would need to be sorted out: how to verify that the job was done, how to stop people from requesting and accepting jobs in bad faith, and how to keep the murder rate below 10%... those sorts of things.
For more realistic examples, if you head to www.stateofthedapps.com you can see over 1,000 apps that currently use Ethereum, including betting systems, online games, public marketplaces, provenance records, online stores for digital assets, voting systems, job markets and much more. We don’t know yet if any of these have real legs, but there are plenty of companies trying, as is an entire country, Dubai, which aims to be the first country to be built on blockchain technology. The future, in that case, is certainly more exciting than a speculative currency.