Blockchain - The technology behind cryptocurrencies
By Crypto Nation – 11 May 2020
Cryptocurrencies work thanks to blockchains. The first of them was born in 2008, with the birth of Bitcoin, by Satoshi Nakamoto. It only took a document of less than 10 pages for the creator to present this very first blockchain to the world. This document, obviously very technical, is available here, for the most curious ones of you.
An incredibly innovative and ultra secure system
A great novel is not necessary to divulge one of the most beautiful innovations of our century. In eight pages of technical digest and almost simple diagrams, you can achieve breakthrough technology .
You will probably have to read it several times to understand everything, but you will quickly realize how clever the concept is .
To try to explain it to you as easily as possible, we are going to split the topic into three parts :
Blockchain, like open books
To classify transactions on the blockchain, imagine an account ledger. A document in which we write everything that is bought and sold.
By reading the document, which is open to all, we will be able to know who paid how much to whom, and when.
However, space in this book is limited. So what to do once your book is filled with all of these transactions?
Just take a new blank book. And we continue, and so on!
But with a little subtlety, each book contains a summary of the previous book. This is how the books are linked together, forming a chain.
The books schematize the blocks of the blockchain.
These books are therefore actually files, filled with data. Blocks that form a chain, hence the blockchain.
Hash and cryptography
A question persists, how to summarize the previous book in the new one? Thanks to Hash!
When we talk about hash, we are talking about cryptography. You may be making the connection to cryptocurrency right away, and you’re right doing so. Cryptocurrencies therefore work thanks to the mechanisms of cryptography.
The hash functions (MD5, SHA256, SHA512, etc.) allow any content to be mathematically transformed into a hexadecimal format. A kind of line made up of letters (from a to f) and numbers.
Using a SHA256 hash on the following word: cryptonation
I get: f8cfa712055602d6490aea2691e79f6173b9609f1ebdd6c9d6171da357f3391c
Using a SHA256 hash on the following word: crypto-nation (I just add “-“)
I get: 20835680b9e88fd785b5353dc7ce427423dceda93017e66b39338303cce03fc5
We notice that the whole line has changed, even though I just added a character in my initial word.
And if I now take the following line: crypto-nation.io the best!
I get: dd30c985fa5c84091338233b70386ea2e9b84fdc952dc6306bf9c9133f0c3731
Although my initial sentence is much longer, the size of my hash result remains the same !
As you can see, thanks to the hash, it is possible to fit all of our previous book, in very little space.
The result of a hash does not allow me to go the other way , to find the initial word or sentence. It is there to verify that the previous data has not been modified !
You can simply try it out for yourself with online hash tools like this one: Online SHA256.
To finally have a more concrete image, let’s replace our books with blocks, and summaries with hash, and there is our blockchain:
Each block therefore contains informations on several transactions carried out on the network. And by reading these blocks, we can retrace the whole history of the exchanges that have been carried out.
Satoshi Nakamoto himself created the first block of Bitcoin on January 09, 2009. Since then, new blocks have been created every 10 minutes or so, by those called Bitcoin miners.
It is legitimate to wonder, if in the long run it will not be too complicated to manage in terms of data storage.
In reality, no. Our storage capacity increases over the years, faster than the weight of the blockchain. If you currently want to download the entire Bitcoin blockchain, it would take just over 300 GB. Which is reasonable.
Now that you know more about the blockchain technology, you can dig deeper by going to see the PoW and PoS consensus. Then jump into the deep end, investing in it !