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What is a Blockchain

10 min. read • Published 2020-08-20

A blockchain is a distributed ledger consisting of records called blocks that is used to record transactions. It is similar to a database, but rather than being controlled by a central authority, the ledger is dispersed across multiple computers, which are located all over the world and run by anyone with an Internet connection.

Transactions

Participants verify transactions independently and when a transaction is embedded in a blockchain, it becomes very challenging to alter this data afterwards.

Blocks

Every block includes the cryptographic hash of the previous block which links the two. These blocks therefore form a chain. 

Structure

A blockchain is a distributed ledger consisting of records called blocks that are used to record transactions. Any involved block cannot be altered without altering all subsequent blocks.

A blockchain database is managed using a peer-to-peer network and a distributed timestamping server. Participants verify transactions independently and they are authenticated by mass collaboration powered by collective self-interests. The use of a blockchain removes the infinite reproducibility of a digital asset. It confirms that each unit of value was transferred only once, solving the double spending issue.

Blocks

Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree.[1] Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain.[1] This iterative process confirms the integrity of the previous block, all the way back to the original genesis block.[22]

Sometimes separate blocks can be produced concurrently, creating a temporary fork. In addition to a secure hash-based history, any blockchain has a specified algorithm for scoring different versions of the history so that one with a higher score can be selected over others. Blocks not selected for inclusion in the chain are called orphan blocks.[22] Peers supporting the database have different versions of the history from time to time. They keep only the highest-scoring version of the database known to them. Whenever a peer receives a higher-scoring version (usually the old version with a single new block added) they extend or overwrite their own database and retransmit the improvement to their peers. There is never an absolute guarantee that any particular entry will remain in the best version of the history forever. Blockchains are typically built to add the score of new blocks onto old blocks and are given incentives to extend with new blocks rather than overwrite old blocks. Therefore, the probability of an entry becoming superseded decreases exponentially[23] as more blocks are built on top of it, eventually becoming very low.[1][24]:ch. 08[25] For example, bitcoin uses a proof-of-work system, where the chain with the most cumulative proof-of-work is considered the valid one by the network. There are a number of methods that can be used to demonstrate a sufficient level of computation. Within a blockchain the computation is carried out redundantly rather than in the traditional segregated and parallel manner.[26]

Block time

The block time is the average time it takes for the network to generate one extra block in the blockchain. Some blockchains create a new block as frequently as every five seconds. By the time of block completion, the included data becomes verifiable. In cryptocurrency, this is practically when the transaction takes place, so a shorter block time means faster transactions. The block time for Ethereum is set to between 14 and 15 seconds, while for bitcoin it is on average 10 minutes.[27]

Hard forks

A hard fork is a rule change such that the software validating according to the old rules will see the blocks produced according to the new rules as invalid. In case of a hard fork, all nodes meant to work in accordance with the new rules need to upgrade their software.

If one group of nodes continues to use the old software while the other nodes use the new software, a permanent split can occur. For example, Ethereum has hard-forked to “make whole” the investors in The DAO, which had been hacked by exploiting a vulnerability in its code. In this case, the fork resulted in a split creating Ethereum and Ethereum Classic chains. In 2014 the Nxt community was asked to consider a hard fork that would have led to a rollback of the blockchain records to mitigate the effects of a theft of 50 million NXT from a major cryptocurrency exchange. The hard fork proposal was rejected, and some of the funds were recovered after negotiations and ransom payment. Alternatively, to prevent a permanent split, a majority of nodes using the new software may return to the old rules, as was the case of bitcoin split on 12 March 2013.[28]