How to Understand Blockchain Without Hurting Your Brain (Too Much)

You’ve probably heard about blockchain already but have no firm grasp of what it means. Simply put, blockchain is the way of organizing cryptocurrencies into blocks of information. The information contained within a certain block relates to the specific crypto’s transactions. When a transaction occurs, miners authenticate the information. This information is recorded on the DLT, or Distributed Ledger Technology, a shared ledger or database, part of the blockchain. Imagine it as a large profit and loss account this makes it easier to visualize, right?

The blocks form part of a series that are chained together to the information contained within that block. An easy way to visualize this would be to think of all the information as being colour-coded. Yellow might be the first block, and the next chain would be another shade of yellow. Eventually, the blocks would change to another colour, but this would be another colour related to yellow, like, say, for example, orange. In this way, the organization of the information is obvious to everyone on the network, and each of the blocks is represented in a cohesive order. Each block is related to the block on either side of it and is connected by colour. This ‘colour-coding’ is done to make it difficult for the chain to be interfered with by an outsider as everyone who works on it has access to the same data on this transparent network. The only real difference between this simple analogy and the reality of the situation is that there are no colours; there are streams of codes and ordered data that follow a specific algorithmic sequence. It also makes it easier to find faults and mistakes on the chain, as if, for example, a purple block that randomly appears in the chain will be easily noticed.

Blockchain contains a massive database that stores a serious amount of information. There are two types of information stored in these blocks — data that secures the chain from outside interference and transaction-related information like wallet addresses, fees, and amounts. The transaction information is usually anonymous and hard to trace to its user. However, sometimes, if the user’s details are linked to an exchange site that requires a sign-up with verification details, this information can be linked. Overall, blockchain technology is very secure, but individuals should ensure that they move their funds to a separate wallet that is not integrated with an exchange as an extra precaution.

As blockchain technology works on a shared basis, there is arguably an element of trust and security in the network. Data is secured and monitored while also visible to everyone working on the system; it operates democratically and transparently. This means that no one person is in charge of the entire system and makes it extremely difficult for anyone to steal or tamper with funds. A huge feature of this shared network, which we are about to explore, is the DLT or Distributed Ledger Technology, which ensures that this transparency is maintained throughout the system.

The DLT and Its Features

The DLT or digital ledger technology used by cryptocurrencies allows the entire system to remain a transparent and shared network. Again imagine a profit and loss ledger that takes all transaction information into account and shows everyone all the recorded data. The DLT ensures that the entire system remains decentralized, meaning that several people have access to the information in several locations. Because there is no one place where all information is stored, there is no one point of attack or weak spot that can result in the loss or corruption of data.

This decentralized storage enables cryptocurrencies to share information while keeping the identity of its user anonymous simultaneously. This is a key feature and incentive for many who choose to use digital currencies, providing them with security and having their funds hidden. On the downside, this has opened crypto up to criminal elements, such as drug sales and money laundering. Still, this feature is a central reason for the majority of law-abiding citizens to use it also.

The DLT is not unique to cryptocurrency technology, but blockchain itself is a unique form of ledger. This type of technology has been used across a variety of other industries, such as those in the medical and pharmaceutical industries and financial institutions. The ledger is amazingly useful for the network because it is extremely efficient, providing up-to-date information for all of those on the network, making it easy to identify and rectify potential issues and process transactions quickly.

The transparent element of the ledger also means that there are plenty of people always on the system, usually miners, working away to prevent issues. Security is extremely important in this system as well, as they are virtually unhackable, documenting these records and making it nearly impossible for anyone to rewrite or change data contained in the blocks.

Hacking and Blockchain

Theoretically, blockchain technology is extremely difficult, if not impossible, to hack. Even if one block were to change due to a hacking attempt, it would be nearly immediately obvious that it would have been tampered with due to the tight sequencing relationship with its neighboring blocks. In other words, to return to the previous analogy, if a purple block suddenly turned up in between several yellow blocks, it would be noticed straight away, right? The data on each of these blocks cannot be changed or written overdue to the immutable nature of blockchain. For a hacker to succeed they would need to rewrite several blocks in the sequence to make the chain link correctly. They would have to go back and rewrite every part of the block in the chain not to attract attention, which is an amazingly large amount of work for something that would end up pointless anyway.

Even if hackers could rewrite an entire block, there simply is no incentive for them even to try to penetrate the chain and alter the data. For the transaction to be recorded on the ledger, it needs authentication on the network. For the process to succeed it needs,51% of everyone in the chain agreeing to validate the information. For a hacker to succeed in altering data, at least that amount of the network would have to agree with them, which is highly unlikely. Again even if they did succeed, their attack would not be the stealthiest and soon noticed, which would have a massive impact on the coin’s value, causing the market to crash and leaving the hackers with useless coins.

Decentralization and its creation of transparency help immensely with the security of blockchain, which is also down to miners’ work.

Hopefully this didn't hurt your brain too much - and I mean why wouldn't it? It's an abstract idea and so alien to everything we thought we knew about fiat money. If you're interested in finding out more (because man, oh man, there is waaaay more) there will be more pieces here every week until I think I've covered most of my bases, and you can click here for the last article.

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