Bitcoins creating a chain of blocks. This is

Bitcoins and
other cryptocurrencies have been in the news a lot these days because of its
increasing popularity as the digital currency. These currencies wouldn’t have
been known without the ‘Blockchain Technology’. This technique was originally described in 1991 by a group of
researchers and was originally intended to timestamp digital documents so that,
it’s not possible to tamper with them. However, it went unused until it was
re-introduced by Satoshi Nakamoto in 2009 to create digital cryptocurrency. Without
a doubt, Blockchain technology is the backbone of the new type of internet in
today’s age. It’s a decentralized digital ledger, the data is stored in packets
called Blocks and thus the name. Blockchain helps us in eliminating the concept
of ‘distributed ledger’. Every person involved in the transaction will have a
copy of their ledger where the data on the transaction is stored.

 One of the major concepts of blockchain
technology is ‘open ledger’. As the name suggests, the ledger which holds the
data about the transactions going on, is open to the public. In other words,
the ledger is decentralized. It is a distributed ledger completely open to
anyone. Once the data has been recorded inside a blockchain, it becomes very
difficult to modify it. Each block contains three elements, the data, the hash
of the block and the hash of the previous block. Data that is stored inside a
block depends on the type of cryptocurrency. Hash can be considered as
fingerprint and is always unique. Once the block is created, its hash is being
calculated. Changing something inside the block would also change the hash.
Hashes are very useful when detecting the changes in the blocks. The third
element inside the block is the hash of the previous hash and helps in creating
a chain of blocks. This is what makes the blockchain secure.

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Computers these
days are very fast and can calculate hundreds and thousands of hashes per
second. In case of tampering of the block, all the hashes are recalculated to
make sure the block is valid. Blockchains have something called the
Proof-of-Work. It is mechanism that slows down the creation of the new blocks.
In Bitcoin’s case, it requires ten minutes to calculate the required proof of
work and add a new block to the chain. This mechanism makes it very hard to
tamper with the blocks because, a single block is tampered, and the proof of
work needs to be calculated for all the following blocks. So the security of
blockchain comes from its creative use of hashing and proof of work mechanism.
There is one more way the blockchains secure themselves and that is by being
distributed.

Instead of using
central entity to manage chain, blockchains use a peer-to-peer network and
everyone is allowed to join. When someone joins the network, he/she gets the
copy of the blockchain. Each person in the network is a node and each person in
the network needs to verify the new block or transaction. Among those nodes,
there are few special nodes called the Miners. These nodes hold the ledger. Miners
are going to compete among themselves as to who will first record the transaction
and valid it. The first miner who is going to do that will get a financial
reward. In this case Bitcoins. Miners do two major things, first are to
validate the new transaction and second, find a special key that will enable to
take a previous hash and lock the new transaction. Blockchain has the following
principles, they are:

·        
Ledger is open/public,
so that everyone in the network can see and validate the transaction

·        
Ledger is distributed
and exists on every node on the network and removes the dependence on the third
party.

·        
Miners validate the
transactions.

Some of the Salient features of
Blockchain are as follows:

§  Digital –
All the information on Blockchain is digitized, eliminating the need for manual
documentation.

§  Cryptographically
Sealed (Tamper proof) – It means it is highly
impossible to delete, edit or copy already created blocks on the network.

§  Consensus based
(common interests) – A transaction on a Blockchain can be executed only if all
parties on the network unanimously approve it.

§  Decentralized – Blockchain
is a network that is decentralized and doesn’t have a central point of failure.
It is hard for anyone to hack or tamper the network since everyone on the
network share a ledger of the transaction that has been made.

Transparent – Since the network is
decentralized and shares copies of ledger on every node of the network, any
transaction made on the network can be seen by everyone on the network.