Blockchain 101 - A Visual Demo

Summary

This script offers a visual demonstration of blockchain technology, starting with the SHA-256 hash function as a digital fingerprint. It then introduces the concept of blocks, including a nonce to achieve a specific hash pattern, and explains the mining process. The script builds a blockchain, emphasizing its immutability and resistance to change, and illustrates how it can be used to track transactions of a token, ensuring the integrity of financial records.

Takeaways

• 🔒 The SHA-256 hash is a digital fingerprint of data that changes with even the slightest alteration in the input.
• 🔑 A hash is unique and consistent for the same data input, but it is computationally infeasible to predict the hash from the output alone.
• 📦 A block in a blockchain contains a block number, a nonce, and data, with the hash of the block including all this information.
• 🚫 The hash of a block must meet certain criteria (e.g., starting with four zeros) to be considered 'signed' or valid.
• 🔄 The nonce is a number used in mining to find a hash that meets the required criteria for a block to be valid.
• 🔑 Each block in a blockchain has a 'previous' hash that points to the hash of the previous block, creating a chain.
• 🔄 Changing data in any block will invalidate that block and all subsequent blocks because their hashes will change.
• 🛡️ Blockchain's immutability makes it difficult to alter past records without re-mining all subsequent blocks.
• 🌐 A distributed blockchain means that multiple peers hold identical copies, ensuring consensus and resistance to tampering.
• 💰 Blockchains can be used to track the transfer of tokens or currency, with each transaction recorded in a block.
• 💸 The coinbase transaction introduces new tokens into the system, similar to mining rewards in cryptocurrencies.

Q & A

What is a SHA-256 hash and how does it function as a digital fingerprint?

A SHA-256 hash is a cryptographic hash function that produces a unique string of characters, which acts as a digital fingerprint for any given data. It changes with even the slightest alteration in the data, ensuring that the hash is unique to each specific set of data entered.

How does the hash change when you modify the data in the input box?

The hash changes immediately with any modification to the data in the input box, reflecting the altered content and demonstrating its sensitivity to even the smallest change.

What is the purpose of a nonce in the context of a block in a blockchain?

A nonce is a number used in the mining process to vary the hash of a block until it meets certain criteria, such as starting with a specific number of zeros. It is part of the trial-and-error process to find a valid hash for a new block.

Why is a block considered 'signed' in the blockchain demo?

A block is considered 'signed' when its hash starts with a specific pattern, such as four zeros, which is arbitrarily chosen in the demo. This indicates that the block has been successfully mined and meets the required conditions.

How does changing information in a block affect the blockchain?

Changing information in a block alters its hash, which in turn affects the 'previous' hash of the subsequent block, invalidating the chain of blocks from that point onwards. This demonstrates the integrity and immutability of the blockchain.

What is the process called when trying to find a number that results in a hash starting with four zeros?

The process is called mining. It involves trying different nonce values until a hash that meets the criteria is found, which confirms the block and adds it to the blockchain.

How does the blockchain resist changes or tampering with its data?

The blockchain resists changes because each block contains a hash of the previous block's data. Altering any information in a block would require re-mining not just that block, but all subsequent blocks, making it computationally impractical.

What is the significance of having multiple copies of the blockchain across different peers?

Having multiple copies across different peers ensures the integrity and consensus of the blockchain. It allows peers to quickly verify the validity of the chain and detect any discrepancies, thus preventing tampering.

How does the concept of a coinbase transaction introduce tokens or money into the blockchain?

A coinbase transaction is a special type of transaction that 'mints' new tokens or money out of thin air and assigns them to a specific entity, like Anders in the demo. This is the initial source of funds in the blockchain before any transactions occur.

Why is it important to track the provenance of tokens in a blockchain?

Tracking the provenance of tokens ensures that each transaction is valid and that no money is created out of thin air. It allows for the verification of the history of each token and maintains the integrity of the currency.

What is the role of immutability in the context of a blockchain used for transactions?

Immutability ensures that once a transaction is recorded in the blockchain, it cannot be altered or deleted. This is crucial for maintaining a reliable and trustworthy record of transactions, especially for financial transactions.

Outlines

00:00

🔒 Introduction to Blockchain and SHA-256 Hashing

This paragraph introduces the concept of blockchain technology with a focus on the SHA-256 hash function, which serves as a digital fingerprint for data. The hash function is demonstrated with a visual example, showing how altering data results in a changed hash. The hash's uniqueness and the process of mining a block, which involves finding a nonce to produce a hash starting with four zeros, are explained. The paragraph concludes with the idea of a 'block' containing data, a nonce, and a block number, which is hashed to verify its integrity.

05:01

🔗 Understanding the Blockchain Structure and Immutability

The second paragraph delves into the structure of a blockchain, illustrating how each block contains a hash of the previous block, creating a chain. The immutability of the blockchain is highlighted by demonstrating the consequences of altering data in a block, which invalidates the block and all subsequent blocks due to the changed hashes. The concept of distributed blockchain copies is introduced, showing how peers on a network maintain identical copies of the blockchain and can quickly identify discrepancies.

10:03

💰 Implementing Tokens and Transactions on the Blockchain

In this paragraph, the script introduces the use of tokens and transactions within a blockchain. It explains how transactions, such as transferring money, are recorded on the blockchain, emphasizing the importance of immutability for maintaining accurate records of financial transactions. The paragraph also touches on the concept of coinbase transactions, which are used to create new tokens out of thin air and distribute them to a particular address, simulating a reward mechanism in a real-world blockchain system.

15:04

🔍 Tracing Transactions and Ensuring Blockchain Integrity

The final paragraph discusses the ability to trace transactions on the blockchain, ensuring that each transaction is valid and that no money is created out of thin air. It explains how the blockchain's structure allows for the verification of each transaction's legitimacy by tracing back through the chain. The paragraph concludes by emphasizing the resistance to tampering and the importance of maintaining an immutable history of transactions, which is a key feature of blockchain technology for secure and transparent record-keeping.

Keywords

💡Blockchain

Blockchain is a decentralized digital ledger that records transactions across multiple computers in a way that is secure, transparent, and verifiable by design. It is the core technology behind cryptocurrencies like Bitcoin. In the video, the concept of a blockchain is introduced as a chain of blocks, each containing data and a unique hash that links to the previous block, creating an immutable record.

💡SHA-256 Hash

SHA-256 is a cryptographic hash function that produces a 256-bit (32-byte) hash, which is a unique string of characters that acts as a digital fingerprint for the data. In the script, the presenter demonstrates how typing 'Anders' into a box generates a specific hash, which changes with even the slightest alteration of the input, illustrating the concept of a digital fingerprint.

💡Fingerprint

In the context of the video, a fingerprint refers to the unique hash generated by the SHA-256 algorithm. It is used to verify the integrity of the data, as any change in the data results in a different hash. The script explains that the hash serves as a digital fingerprint, ensuring that the data remains unchanged.

💡Block

A block in the context of blockchain technology is a set of transactions or data that has been hashed and added to the blockchain. Each block contains a unique hash, a timestamp, and a reference to the previous block's hash, forming the chain. The script describes how a block is created, including the use of a nonce to satisfy the condition of starting with a certain number of zeros in the hash.

💡Nonce

A nonce is a number used only once and is a key component in the mining process of blockchain networks. It is used to vary the hash input to find a hash that meets certain conditions, such as starting with a specific number of zeros. The script demonstrates how changing the nonce can alter the block's hash until it meets the criteria for a 'signed' or valid block.

💡Mining

Mining in the context of blockchain refers to the process of finding a valid hash for a block by trying different nonce values. It is computationally intensive and serves as a mechanism to both secure the network and create new tokens. The script describes the mining process as the action of pressing a 'mine' button to find a nonce that results in a hash starting with four zeros.

💡Immutability

Immutability refers to the property of a data set that cannot be changed once written. In the video, the presenter explains how the blockchain's design ensures that once a block is added to the chain, it is extremely difficult to alter, thus maintaining an immutable record of transactions. This is crucial for maintaining the integrity and trustworthiness of the blockchain.

💡Transaction

A transaction in the script refers to a transfer of value, such as a token or cryptocurrency, from one party to another. The blockchain records these transactions in blocks, providing a transparent and verifiable record. The script illustrates transactions with examples like 'twenty-five dollars from Darcy to Bingley', emphasizing the blockchain's role in recording these movements.

💡Token

In the context of the video, a token represents a digital asset that is transferred within the blockchain. Tokens can represent various assets, such as cryptocurrencies or other digital goods. The script introduces the concept of a token by showing transactions involving 'dollars', which are a form of token on the blockchain being demonstrated.

💡Coinbase Transaction

A coinbase transaction is a special type of transaction that creates new tokens and assigns them to a specific address, typically as a reward to miners. In the script, the presenter adds coinbase transactions to the blocks to simulate the creation of new tokens, which is essential for understanding how new tokens enter a blockchain economy.

💡Distributed Ledger

A distributed ledger is a database that is consensually shared and synchronized across multiple sites, institutions, or geographies. In the video, the presenter explains how the blockchain operates as a distributed ledger, with each participant or 'peer' having an identical copy of the blockchain. This ensures that the blockchain is resistant to tampering and maintains a consistent state across the network.

Highlights

Introduction to blockchain technology through a visual demonstration.

Explanation of SHA-256 hash as a digital fingerprint for data.

Demonstration of how the hash changes with even the slightest alteration in data.

Illustration of the hash's consistency for identical data input.

Introduction of the concept of a 'block' in a blockchain structure.

Description of the 'nonce' as a variable number used in the mining process.

Process of mining to find a nonce that results in a hash starting with four zeros.

The importance of the 'previous' hash in linking blocks in a blockchain.

Demonstration of how altering data in a block invalidates the entire chain.

Explanation of how blockchain resists mutation and maintains data integrity.

Introduction to the concept of a distributed blockchain across multiple peers.

How consensus is achieved in a distributed blockchain through hash verification.

The use of blockchain for token transactions and maintaining an immutable ledger.

Demonstration of a coinbase transaction to introduce new tokens into the blockchain.

The significance of tracking the provenance of tokens in a blockchain.

The role of blockchain in resisting tampering and ensuring the integrity of currency transactions.

Overview of the practical applications and benefits of using a blockchain for transactional records.

Announcement of a follow-up part 2 for further details on transaction creation.

Transcripts

this is a blockchain demo

we're gonna do this in a very visual way though

we're gonna make it very easy to understand

by stepping through the key pieces of

what a blockchain is in a visual way but

before we get started we need to take a

look at this thing that we call a sha

256 hash

ok and a hash this is this is one of

them right here

hash looks like a bunch of random

numbers and essentially what it is it's

a fingerprint of some digital data and

it just so happens it's a fingerprint of

whatever i type in this box

so if I type my name "anders" into

this box you see that the hash has

changed matter of fact it changed every

time I typed a letter right so I'm going

to go back to so it says anders okay so

this is a the hash of the name anders

all lower case it starts with 19ea

right

ok so if i delete that and I go again

type anders again you can see it starts

with 19ea the same exact hash in that

sense it's a digital fingerprint of this

data whatever data is here every time

you type exactly the same data you get

exactly the same hash and i can type

anything i want so I can you can have

nothing like this you know e3b0

that's that's the hash of nothing or you

could type tons and tons of stuff a

matter of fact you could put like the

library of congress in here and you

would get a hash and the interesting

thing about it is regardless of their if

there's a tiny amount of information no

information or the entire library of

congress you're always going to get a

hash that is this long this many

characters are you not going to be able

to pre guess what this is you kind of

have to put the library of congress in

here to figure out what the hash is but

you you'll always get exactly the same

hash regardless of how many times you

put exactly the same information in so

what I'm going to do is extend this idea

of a hash

into something that we're going to

call a block

alright so let's take a look at a block

so this is a block and it's exactly like

the hash it's just that data section

I've broken out now into three sections

one called block this is just some kind

of a number this block number 1 a nonce

which is just yet another number will go

into what that is in a second and then

just some more data just very similarly

to the way that we had it before

however the hash of this which includes

all of this information up here is down

here and it begins with four zeros you see that

it's a relatively unusual hash you know

most of them are not really going to

start with four zeros like that but this one

happens to and because it does totally

arbitrarily i'm going to say that this

block is signed

ok so what would happen if i were to

change any one piece of this information

let's say if i were to type something here

right the hash is going to change and

what's the chance of that if i type

letters this hash is going to start with

four zeros pretty low it's probably not

right so let's see what happens when i

do that i'm just going to say hi

look at that right this hash does not

start with four zeros and so the big

background here has turned red

so now you know that this this block

with this information in it is not a

valid or a signed block ok and that's

where this nonce comes in this

nonce is just a number that you can set

to try to find a number that fits so

that this hash starts with four zeros again

alright so how do we do that well let's

start with one that start with now it's

32 so that's not one let's try two FF

now

3 4 5 6 so you get the idea like i

could sit here all there's one that

starts with 0 I can sit here all day

typing these numbers and trying to

figure out one that actually is going to

hash out to something that starts with

four zeros that wold take a long time so

here i have my little

mine button i'm sure you've been wondering

what happens if i press that so what's

going to happen when i press this mine

button is it's gonna run through all the

numbers from 1 all the way up to try to

find one where the hash starts with four

zeros and this process is called mining

let's do it right now

now it's checking all of the numbers

from 1 all the way up with their now

it's stopped at 59,396 and that one

just happens to hash out to something

that starts with four zeros and it

satisfies my little definition of what

assigned block is ok so that's that's a

block now can you tell me what a

blockchain is it's probably just a chain

of these blocks well how do you how do

you put them together let's let's do

that

alright so here's my blockchain I've

blocked number one has some kind of

a nonce just like before there's some

data area too but then it has this

previous here is a bunch of zeros let's

let's roll forward so this is block

two and block 3 and 4 this block chain

has five blocks on it right the previous

here starts with 0000ae8 right is

this number

ae8 and then this previous you know b90 is this one

over here b90 so you can see that each

block points backwards to the one before

it

you remember that that first block over

here

there actually is no previous so it's

just a bunch of zeros it's actually just

a fake number

ok so just like we did before what

happens if I change some information

here right it's going to change the hash

of this block and it's going to

invalidate it right now let's try that

so i'm going to type pie again sure

enough that block is invalid

alright just as we assume but what would

happen i'm going to fix that now we'll

go back to something that work what

would happen if I changed something in

this block right it's going to change

this hash

but this hash gets copied up to this

previous so it's going to it's going to

change this one to right so it should

break both blocks so let me try typing

hi in there and sure enough all right so

we can go back as far as we want you

know to some point in the past and

break that block and it will break all

the blocks since then everything before

still green but this one is is red it's

so if i wanted to you know change

something in this this block chain I

could just go over to block number five

right here we could change it I'll put

hi and then we could remine it you

know and pick a different nonce will do

that right now and we could essentially

alter the chain so we've done it so that

we should be good down right all right

well what happens if i go back in time

to hear and I break it here now i have

to mine this block which will pick a

nonce that makes this block hash out to

four zeros if we can find one sometimes

it takes a while because it's gotta run

through a lot of there it is it found

one at a hundred and thirty-eight

thousand alright but this one is still

broken because although this one starts

with four zeros adding the four zeros with

different stuff up here still makes this

block hash out incorrectly so i also

have to mine this block

alright and that takes some amount of

time that one was a little bit quicker

and then i have to mine this block to

fix it

alright so what we're showing here is

that if i go and change this last block

all i have to do is remine this block if

I go way back in time to back here and I

make a change like that i'm going to

have to mind this one this one this one

and this one so the more blocks that go

by the more blocks in the past that we

are the harder and harder and harder it

is to make a change and so that

it's how a blockchain is going to resist

mutation resist change

ok so now you like like you know

identify if if i do this in this block

here you can see that I've changed it to

hi and I remine it blah blah blah how

would i know that my block chain has

been remined all right let's take a look

at that I'm gonna hit this little

distributed thing so now we have a just

distributed blockchain it looks exactly

like the last blockchain ok up to five

that but this is peer a the first peer

if you go down here you can see here is peer b

and it happens to have an exact copy of

the blockchain there's actually also

a peer c down here right this could go

on forever

there's many many peers out on the

internet and they all have a complete

copy of the blockchain so in this case

if i look at this hash it's 0000e4b

all right if I go down to this one I

notice it also has e4b if I go

down to this last one it has e4b so they

must be identical and i'm going to

demonstrate that by going here and

typing something i'll type hi again and

then i will remine this block

I've got some other number now let's put

some other number up here so i should be

able to mine this block

okay now all the chains are green right

they're all green

however this chain says the last hash is

e4b the bottom one says that too e4b

and this middle one here says 4cae

so I know just by glancing at this one

little hash that something is wrong in

this blockchain even though all of the

hashes start with four zeros I know that this one

is different and it's different because

i have two it's essentially two against

one we are a little democracy here right

this guy argues that it's

e4b this guy argues that it's

4ca and this one is e4b

so e4b wins so that's how a

completely distributed copy having a

copy on many different computers they

can all very quickly see if all of the

blocks are identical remember

blockchains can have you know 4

500,000 blocks very easily so rather

than checking through all of them all

you really have to do is look at the

hash of the most recent one and you can

see that if anything in the past

anything way back here was altered you

can tell by looking at this at the last

block in this in the chain you know it's

going to hash out to something that

doesn't start with four zeros and looks

very different from what the hashes on

the good chains are ok so that's a

blocking that's the entire thing there

is no more to it than that but it's kind

of not really useful because we don't

have some something in this data area

that means anything i keep typing my

name or hi and that's kind of that sort

of irrelevant information so what we

really want is a token so let's do a

token on our blockchain all right now

look at this so i have this token just

totally arbitrarily I'm calling these I

guess dollars right so we have

twenty-five dollars from Darcy to

Bingley four dollars and twenty-seven

cents go from Elizabeth to Jane you get the

idea it's basically there's all these

transactions that are happening and I've

just replaced the data with these

transactions and just like we saw before

you know so there's multiple blocks here

this one has more transact... it doesn't

matter how many transactions there are

there can be many or there can be few or

none if we keep going forward here just

like we saw before

if we go down and we notice we have all

these other copies of the same block

chain right so now here's where the

immutability is important if i change

something back here you'll notice that

this is you know a7fc blah blah blah

something it's something else

so it's something different than what's

down here so in in this way I mean it's

very important that if i were to go back

in time and change some value that we

would notice it's it's very important

with money that you don't lose track and

that's the whole point of using a

blockchain here this is a whole point of

resisting any kind of modifications you

know of things that have happened in the

past so that's the that's the reasoning

behind having using a blockchain to

remember tokens now I one thing I would

mention here is that we're not listing

you know Darcy has a hundred dollars and

he's giving 25 of it to Bingley the only

thing we're saying is Darcy gives 25 to

Bingley. We're not remembering a bank

account balance we're only remembering

money movements. So this begs the

question "does Darcy have $25?" Well we

have a problem here in this version

of the blockchain: we don't actually know

if Darcy has $25. So let's look at a

coinbase transaction. So if we look back

here a coin base we're going to add a

coinbase transaction to our blocks and

this is this is very similar to what

we've seen before but we're just adding

a coinbase at the top and what's that

that what that's saying is we're going to

invent a hundred dollars out of thin air

and give it to Anders and there's no

transactions in this block because

nobody had any money previous to this. In

the next block another hundred dollars

comes out of nowhere and goes to Anders i'm

a fan I love it right I'll take a

hundred bucks now we have some

transactions you can see that they're

all from Anders, they're all from me because

I'm the only one who has any money at

this point. So I'm sending 10 of my

dollars to Sophie. Do I have ten dollars?

Yeah, I do, I look back and I see that

this coinbase transaction has given me a

hundred so I have at least 10 and I can

send it on and you add all these up and

they don't go

over a hundred and it follows sort of a

basic rule of a currency that you

can't invent it out of thin air you can't

create money out of thin air you this

its dispersion is controlled so now if

we look at this block chain that we've

created and we zip forward in time and

we notice that we see that Jackson is

giving Alexa two dollars and so does

Jackson actually have two dollars to

give Alexa well we go back a block

before we see that Emily had gotten ten

dollars from Anders gave 10 to Jackson

and so Jackson does have the money so we

can just go backwards and and find that

out

that's actually one of the benefits of

having a previous here it's easy to go

backwards we we just look for the block

that looks like that that has that hash

and here it is right here right so you

points two blocks back in time and

allows us to trace the provenance of any

coin that we want

so that's a basic block chain and we're

running a currency on top of it and as

you know blockchains are there many

copies everybody has a copy of it so if

we mutate you know this and make it six

dollars these go invalid it does not

agree with with these block chains down

here these copies of the same block

chain down here so this resist tampering

which is what you want for a currency it

works very well for things that are

small and transactional like this

go ahead and fix that and they're

just a very efficient way to

handle agreement on what has happened in

the past as kind of this immutable

history that that goes down with

time so that's a basic block chain and a

token on it there were glossing over

some main points but if you dig into the

demo and and click through these things

and

play around with it you get a better and

better idea of how this works there will

be a part 2 where we go into a little

bit more detail about how the

transactions are created till then