Foundation 64 is excited to have recently launched a Blockchain donation option! For those unsure of exactly how Blockchain technology works or if you should trust it, we thought we would create a blog post breaking down Blockchain technology and explaining it in simple terms. Consider this a complete crash course in Blockchain technology!

So what exactly is Blockchain technology?

It’s important to keep in mind that Blockchain is a type of technology and not a single network- think the Internet versus email.

For those visual learners, here’s an overview of the technology, which I will work to break down throughout the rest of this blog post:

Source: Coin Mama

A Blockchain creates an incorruptible digital ledger of “transactions” that can be programmed to record and track not only financial transactions, but anything of value including information, files, etc. For the sake of clarity and in relation to the services we offer however, we will only be discussing financial transactions in this blog post.

A Blockchain uses a “Distributed Database”, meaning that all information on the Blockchain is part of a shared and constantly audited database that is not stored in one single location, making it completely decentralized. This means that there are public and verifiable records for every single transaction, meaning that there is no central point of failure for anyone to attack or alter (like robbing a bank).

Source: D Zone

A Blockchain is hosted by millions of computers (called nodes) simultaneously, meaning that all information is shared across the public Blockchain and is accessible to anyone at anytime. Every node acts as an administrator for their particular Blockchain and is part of the network voluntarily, creating a fully decentralized network of transactions.

Blockchain technology is a database of transactions that’s validated by a wider community (of nodes which I introduced earlier) instead of a central authority. It’s a collection of records a crowd oversees and maintains rather than relying on a single entity, like a bank, to host all of the data on a single or proprietary server.

The Blockchain network exists in a constant state of consensus between nodes. This means that the network automatically checks in with itself during a set amount of time, making it a self-auditing ecosystem of connected nodes. Every transaction that goes on within this set amount of time is reconciled (accepted as legitimate or rejected as fraudulent) by the network. The groups of approved transactions on a network are called blocks.

What exactly does a block contain?

Each block contains data, it’s unique hash and the previous block’s hash.

The data stored inside the block depends on the type of Blockchain. For this example we’ll use Bitcoin: it stores the sender, receiver and amount of coins. It’s important to realize that a block can contain the information of more than one transaction.

Source: Pixel Privacy

Now, each block represents a transactional record, but it’s the chain component that links them together, using what’s called a hash function. Blocks are created by first being confirmed by the distributed network of nodes (which I will get to!) and then permanently linked with the previous entry in the chain with a hash.

So what is a hash exactly? Well, it’s a mathematical function that converts an input of letters and numbers into an encrypted (secure and hard to crack) output. A hash is created using an algorithm (another computer program).

A hash is like a fingerprint: it identifies the block and all of its contents and is always unique. Once a block is created its hash is constantly being verified, so changing something inside the block (like trying to tamper with already approved transaction information, aka how much Bitcoin someone sent you) will cause the hash to change.

Source: Auth 0

If the fingerprint of the block (the hash) changes, it is no longer the same block. And since each block contains the hash of the previous block, part of what makes the Blockchain so secure is that by changing the hash of one block, all the remaining blocks in the chain are affected and become corrupt.

The first block in any Blockchain is special, as it can’t point to previous blocks (since it’s the first one) and is called the “genesis block”.

Working off the this example, if an attacker were to try and tamper with the second block in the chain, it would cause the hash of that block to change, making the third and all following blocks invalid, as they no longer store the valid (correct) hash of the previous block.

Source: Ruby Garage

Hashes alone however are not enough to prevent tampering, so to protect the Blockchain even further, it uses something called proof of work.

For a block to be successfully added to the chain a very complex puzzle must be solved, called a cryptographic puzzle. The computer that solves the puzzle first shares the solution to all the other computers on the network, and this is called the proof of work.

The network then verifies this proof of work, and if it’s mathematically correct, the block gets added to the chain. The combination of these complex mathematical equations and the distributed verifications by the nodes on the network creates trust in every block on the chain. This means trust can be decentralized securely- you don’t need to rely on a single trusted 3rd party like a bank, instead you can rely on the distributed nodes on the Blockchain network.

Proof of work slows down the creation of new blocks. In Bitcoin’s case, at the time of writing this blog post, it takes about 8 minutes  to calculate the required proof of work and add a new block to the chain.

This again makes tampering with the blocks really difficult, since if you tamper with one block, it means you’ve forced the recalculation of the proof of work for all the following blocks in the chain.

Security on the Blockchain comes from the combination of hashing and the proof of work mechanism.

Another layer of security comes from using a peer-to-peer (open) network where everyone is allowed to join. When someone joins the network, their node gets a full copy of all of the transactions on that particular Blockchain. Their node uses this information to verify that everything is still in order and that the transactions are all still correct. As I’ve mentioned, the Blockchain exists in a constant state of consensus since it’s constantly verifying the hashes and proof of work statements.

So, to sum up what we’ve discussed today, here’s how traditional, centralized leaders work:

And here’s how the Blockchain’s peer to peer ledgers work:

Source: Pixel Privacy

All the nodes on a Blockchain network create and maintain this consensus, and agree about which blocks are valid and which aren’t. This way, the nodes on the network reject any blocks that are tampered with.

The last piece of the security puzzle that keeps the Blockchain secure is strong encryption, in the form of public private key encryption. This is a higher level concept, so if you’re interested, here’s a great summary of the technology:

So now you’ve just completed a crash course on how Blockchain technology works and what makes it so secure! Still have questions? Feel free to ask them down below!

Stay tuned for the next blog post, which breaks down the difference between Blockchain technology and Bitcoin, and breaks down the different forms of cryptocurrency!