What is blockchain?

04 May 2021

Blockchain typically refers to a data storage technology/technique that arranges data into chronologically ordered, discrete (separately countable) blocks. The data blocks all have their own unique identifiers and are typically “chained” together at regularly timed intervals.

Furthermore, all blockchains are simply a form of database, while not all databases are necessarily blockchain. Blockchain simply refers to a technique of data storage. For instance, a Microsoft Excel spreadsheet with a company’s financial data is a form of database arranged in a table but is obviously not a blockchain.

Relating blockchain to cryptocurrencies, Bitcoin’s blocks have a hard capacity limit of 1MB per block – regardless of the number of transactions recorded in it, with every block being added to the blockchain every 10 minutes. Accordingly, this gives Bitcoin approximate transaction specifications of around 7 transactions per second, with payments taking around 10 minutes on average (if the network is not congested).

Fact 1: As some readers may imagine, because the Bitcoin blockchain is an unending record of every transaction dating back to 2009, the current size of the Bitcoin blockchain as of April 2021 is 330 Gigabytes.

Fact 2: The number of blocks in a blockchain is also referred to as the blockchain’s height. For instance, Bitcoin’s current “height” is in excess of 670’000 blocks, meaning that there are over 670’000 blocks currently in the blockchain, with 144 new blocks added daily. The very first block in the blockchain has a height number of 0, with every block after that having a height number of +1 in an arithmetic series. Every new block thus has a unique height in the blockchain representing their chronologically ordered addition.

Blockchains – A type of Distributed Ledger Technology

Put simply, all blockchains are a type and subset of distributed ledgers.

A distributed ledger is a decentralised database that exists simultaneously across several different, usually independent locations and participants, all acting to maintain the database through verifying information on the database through consensus.

This gives a distributed ledger multiple points of failure, increasing its resilience. This is as opposed to a centralised ledger, where only one actor manages the database, giving it only a sole point of failure.

Centralised ledgers in essence tend to ultimately require some form of central authority or intermediary such as an audit process to verify their authenticity, while distributed ledgers actually have no need for such actors due to the consensus mechanism built into the data storage method.

Differences between Blockchain and Distributed Ledgers

Blockchains are a specific kind of distributed ledger that use cryptography between data blocks to make it unviable or exceedingly difficult for malicious actors to falsify or manipulate data. To achieve this, many blockchains such as the Bitcoin blockchain use a system of hashing, a cryptographic method where a hashing algorithm converts the data in the block into an alphanumeric string – a hash.xw

As can be seen above, the longer a chain gets, the longer the unbroken chain of references to a parent block. Thus, technically speaking, the older (and longer) a blockchain gets, the more secure it will become.

What are hashes?

A hash is an alphanumeric string meant to represent a specific text input. There are many different hash functions such as Message Digest (MD), RIPEMD, Whirlpool, and SHA.

A text string input (a block of data in the blockchain is still technically a text string) into a hashing algorithm generates an alphanumeric hash of a fixed size (e.g. Bitcoin’s hash is always 32 bytes). In typical examples, putting the alphanumeric hash through a decryption algorithm will typically yield the original text string.

Bitcoin’s hashing standard is however the SHA-256 originating from the SHA-2 (Secure Hash Algorithm 2) cryptographic hash function created by the United States National Security Agency in 2001. This algorithm only hashes text in a one-way compression function, meaning that once hashed, the alphanumeric string cannot be decrypted.

Source: Example from a mined block viewable on Blockchain.com. The block’s hash is highlighted

Try hashing, yourself!

Step 1: Copy the following hash – d56bf970b2bd8c25ab544c337531c117

Step 2: Go to this link to access a decrypter for the MD5 hash function

Step 3: Paste the string from Step 1 into the text box and click “Decrypt

Step 4: Receive the text output that the string in Step 1 was meant to represent

If you liked this example, you can try your hand at creating your own hashes out of text messages here. As a further point, the MD5 hashing algorithm used in the example here is also a one-way hash function. However, we are able to discern what the hash symbolises as the decrypter contains a database matching millions of hashes to their output.

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