Blockchain for Beginners


Recently I've gotten a lot of questions about what a "Blockchain" is and how it works. If you are already familiar with databases and encryption, there is a great deal of highly technical information available on this topic. The following post is intended for those who are just starting out. 

Who hasn't heard of cryptocurrencies like Bitcoin, Ethereum, and Dogecoin? Or NFT's? Maybe you have even invested in them? One thing they all have in common is a database technology called "Blockchain." Data security and integrity are of  the highest importance in financial transactions and blockchain is one way we can guarantee this. To understand the way it works, it helps to think of a single Block like a spreadsheet containing data. A collection of these blocks is a called a “Blockchain.”

Similar in structure to a ledger, the blockchain is distributed in nodes across a computer network. Each node on the network contains a copy of the entire blockchain. The first block is always numbered “Block 0” and is known as the “Genesis Block.” The “hash” is a randomly generated Hexadecimal number which may be up to 256 bits long. Since the hash generated is unique to the data, it acts very much like a “fingerprint.” This makes a hash useful for verifying the integrity of data sent through public communication channels like the Internet. The Genesis Block is a special case in that it does not reference a previous block. The diagram below shows the basic structure of a blockchain:


The blockchain is updated automatically. Once a set number of approved transactions have been completed, a new block is created. This new block is linked to the chain using the previous block's hash as shown above. Unlike other structures, no centralized database server is required to instruct the other computers on the network to create the new block containing data. Once the blockchain is updated it can not be changed. It is impossible to forge, making it very secure for online transactions. Only new entries may be added to a blockchain. 

In order to conduct a transaction (such as a Bitcoin payment) you will need to have a Digital Wallet and a Private Key. The private key is a string of random numbers known only to you. For security purposes, this number must be kept secret. You sign the message using your private key. This “two-key” system dates as far back as the mid-1970’s and forms the basis for encryption and cryptography today.

Finally, the encrypted payment or transaction is uploaded to the network. If it is valid, the data is stored inside a block where it can no longer be altered. 

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