By this time, most people have at least heard about Bitcoin and the Blockchain technology that powers Bitcoin. This post dives into the Blockchain just a little to show how the Blockchain is so secure and powerful.
First, the Blockchain enables Bitcoin to be a “trustless” currency. That does not mean we don’t trust Bitcoin, but instead, we don’t have to trust it. With our current banking system, we must trust that the banks and governments are trustworthy and will do the right thing when it comes to monetary policy. After years and years of seeing that governments and central banks are not trustworthy, it is worth spending some time to understand what a trustless system is and how it works.
According to Wikipedia, the Blockchain is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Each block of transactions is linked to previous and future blocks.”
The blockchain is the ledger or record of all transactions. When Katie sends a Bitcoin to Ryan, that transaction is recorded in the public ledger. It is time stamped and cannot be undone. Every Bitcoin transaction that has ever been recorded is in the Blockchain. And unlike the ledger of your bank or the Federal Reserve Bank, the contents of the ledger is open to the public.
A collection of transactions are bundled together into a block. Every block in the Blockchain has a hash for the data in its block and the hash of the previous block.
A hash is a computer algorithm that takes data of any length and creates an output of a fixed length. A small change in the input data will cause a significant change to the hash output. And no two pieces of data have the same hash.
You can test this yourself by using a hash generator (https://passwordsgenerator.net/sha256-hash-generator/). In the example below I entered my name and got the hash output. Then I changed the space between my first name and last name to a period. Notice the resulting hash is significantly different.
A very simplified example of data in the blockchain is shown below. Let’s assume we jump in the middle of the blockchain between blocks 510131 and 510133.
When block 510131 is full and it is time for block 510132 to be created, block 510132 will start with the hash of block 510131. The “previous hash” is included in the calculation of the hash for the current block.
Blocks are created similar to this every 10 minutes.
If anyone wanted to modify a transaction that occurred previously, let’s say the transaction in block 510131 that has Ellen sending 1.15BTC to Frank was to be modified to send 1.15BTC to John instead of Frank. If that were to happen, then the hash for that new block would have to be modified, and the beginning hash of the next block (because the previous hash is used in the calculation of the hash for the current block) and so on and so on until the current block is modified. Those changes would have to be performed on every computer running the blockchain software everywhere in the world … before the next block updates.
This is a simplified version of the technology that secures all Bitcoin transactions. The actual technology is very complex and more suitable reading for those interested in diving into cryptography. The takeaway is that blockchain transactions are incredibly secure. In order for someone to fudge a transaction, they would need more computing power than currently exists … much more.
About John Cannon
John is the founder and CEO of Symply Health a company that creates behavior change programs to help with Smoking Cessation, Healthy Eating, Stress Management, and the exercise game Agatha. He can be reached at John@Cannon.cc.
Want to learn more, I’ve published a beginners guide to Bitcoin (http://bit.ly/BTC-101Book). If you would like a discounted version of the book by paying in Bitcoin or Ethereum, contact me directly.