Blockchain Technology, or distributed ledger technology, is an algorithm created by a combination of cryptography, software engineering, and mathematics. Blockchain Technology allows to generate public, shared, distributed ledgers of blocks of information. All distributed ledgers are exact copies of each other, incorruptible and updated across a network of computers without the need for a central authority. In the following paragraphs and graphics, we describe in more detail how it works.
(Also refer to Blockchain definition and meaning made easy)
What is a Blockchain?
A Blockchain is a succession of blocks, one after the other, similarly to the lines of a bank statement. Each block contains accurate information on the transactions made over the primary object, as each line of the bank-statement includes a transaction on your account.
A blockchain could refer to a cryptocurrency, like a Bitcoin, or a Financial Bond issued by a company (like the Corporate Bonds issued by Daimler in 2017) or to more physical objects like diamonds. Each Block in the Blockchain contains information on a particular transaction or operation carried over the “object” (such as a Bitcoin has been sold or a Bond has been transacted)
There is a Blockchain for each “object.”
A block within the Blockchain
A blockchain starts with the creation of “block 0”, also called “Genesis Block.” A block contains several items of information, created according to the Blockchain Technology algorithm and its purpose is to ensure the correct functioning of the Blockchain.
Every Block has a standard structure with:
- The Block size: in bytes
- The Block Header (explained below), which uniquely identifies this block and link it to the blockchain that it belongs to
- The transaction counter: How many transactions does the Block contains
- Transactions: the information on the transactions recorded in this block
Note: we are using the word hash which is a common term in cryptography. As defined in Webopedia, “a hash is a number generated from a string of text. The hash is substantially smaller than the text itself and is produced by a formula in such a way that it is extremely unlikely that some other text will produce the same hash value.”
The header is a string of bytes, with the following info:
- A reference to the previous Block: it is the hash of the previous block in the blockchain (usually called the parent block). It, therefore, refers to the previous transaction, which it also refers to the previous one. The chain of references goes till Block 0.
- The Merkle Root contains the information of the transactions to which this block refers. It is the hash that contains all the hashes of all the transactions in the block. It is built by hashing paired data in succession until a single hash remains.
- The Time-stamp: is the electronic timestamp of when the block was created
- Three very technical elements of the algorithm: Version, Difficulty Target, and Nonce. These elements contain information on the process to track the software, protocols updates, counters used for the proof of work, etc. If you are not into programming Blockchain Technology, there is no need to go further in its technical details
Every block is identified by the hash of its Header, which, in summary, is a cryptographic version of the transactions and the reference to all previous blocks in the blockchain
Recording a Transaction: Adding a Block to a Blockchain – Open and watch the animation below
When a transaction or a group of transactions is going to happen, a new block is created and broadcasted to all the nodes in the network. The nodes verify that the identities of the parties carrying out the transactions are correct, that the information is correct and that this new block is, in fact, the next block to the last recorded of the blockchain stored in all the nodes, as described in the figure above.
READ BLOCKCHAIN DEFINITION IN THIS CARD
Any “BUZZWORD” you do not find?
Suggest a Buzzword you would like DigitalFullPotential.com to include in this section
Suggest a definition for another “BUZZWORD”
If you want to contribute to the definition of a Buzzword not yet included at DigitalFullPotential.com, you are welcomed.
If you so like it, we will acknowledge your contribution with your name and the link to your LinkedIn/webpage. If you prefer to do it anonymously, it is up to you.