How does a blockchain work - Simply Explained

Summary

The video script delves into the concept of blockchain technology, explaining its origin, function, and applications. Initially designed for timestamping digital documents in 1991, blockchains gained prominence with Bitcoin's creation in 2009. A blockchain operates as a secure, open, and distributed ledger, where data integrity is ensured through hashing and the proof-of-work mechanism. The script also touches on the peer-to-peer network's role in maintaining consensus and security. It hints at smart contracts and other potential uses, such as medical records and digital notarization, showcasing blockchain's versatility beyond cryptocurrencies.

Takeaways

• 🔒 Blockchains are a secure chain of blocks that contain information and are difficult to alter once data is recorded.
• 📜 The concept of blockchain was first described in 1991 for timestamping digital documents to prevent tampering.
• 💡 Satoshi Nakamoto adapted blockchain technology in 2009 to create Bitcoin, the first digital cryptocurrency.
• 📚 A blockchain is a distributed ledger that is open and accessible to anyone, ensuring transparency.
• 🔗 Each block in a blockchain contains data, its own hash, and the hash of the previous block, forming a chain.
• 👁️ A hash functions like a fingerprint, uniquely identifying a block and its contents, and changes with any modification.
• 🔄 The hash of the previous block in each new block creates a chain that secures the integrity of the entire blockchain.
• 🛡️ Proof-of-work is a mechanism used in blockchains to slow down the creation of new blocks and deter tampering.
• 🌐 Blockchains are distributed across a peer-to-peer network, with each node holding a copy of the ledger for verification.
• 🔄 Nodes in the network reach consensus on the validity of blocks, and any tampered blocks are rejected by the network.
• 💡 The security of a blockchain is derived from its use of hashing, proof-of-work, and a distributed network architecture.
• 📝 Smart contracts are a recent development in blockchain technology, allowing for automatic transactions based on conditions.
• 🌟 Blockchain technology has potential applications beyond cryptocurrencies, such as in medical records, digital notarization, and tax collection.

Q & A

What is a blockchain?

A blockchain is a chain of blocks that contains information. It is a distributed ledger that is completely open to anyone and has the property that once data is recorded inside, it becomes very difficult to change.

Who originally described the concept of a blockchain?

The concept of a blockchain was originally described in 1991 by a group of researchers who intended it to timestamp digital documents to prevent backdating and tampering.

How was the blockchain concept adapted for the creation of Bitcoin?

The concept was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin, utilizing the blockchain as a secure and open ledger for transactions.

What is the significance of a block in a blockchain?

Each block in a blockchain contains data, the hash of the block, and the hash of the previous block. The block's data varies depending on the blockchain type, and the hashes serve as unique identifiers that detect changes.

How does the hash function in a block contribute to the security of a blockchain?

The hash function acts like a fingerprint for a block, identifying it and all its contents uniquely. Changing anything inside the block will cause the hash to change, making it easy to detect alterations.

What is the purpose of including the hash of the previous block in a new block?

Including the hash of the previous block in a new block creates a chain of blocks. If a block is tampered with, it invalidates all subsequent blocks because they no longer store a valid hash of the previous block.

What is proof-of-work and how does it relate to blockchain security?

Proof-of-work is a mechanism that slows down the creation of new blocks, making it computationally expensive to tamper with the blockchain. It requires significant computational effort to recalculate the proof-of-work for all following blocks after tampering with one block.

How does a distributed network contribute to the security of a blockchain?

A distributed network, or peer-to-peer network, allows anyone to join and receive a full copy of the blockchain. Each node verifies new blocks, ensuring they haven't been tampered with, and consensus among nodes maintains the integrity of the blockchain.

What is the consensus mechanism in a blockchain network?

The consensus mechanism is how all nodes in a blockchain network agree on what blocks are valid and which aren't. Tampered blocks are rejected by the network, ensuring the integrity of the blockchain.

What is a smart contract and how does it relate to blockchain technology?

A smart contract is a simple program stored on the blockchain that can automatically execute actions, such as exchanging coins, based on certain conditions. It is one of the recent developments in blockchain technology.

How can blockchain technology be used beyond cryptocurrency?

Beyond cryptocurrency, blockchain technology can be used for various applications such as storing medical records, creating a digital notary, or even collecting taxes, due to its secure and tamper-evident nature.

Outlines

00:00

🔒 The Basics of Blockchain Technology

This paragraph introduces the concept of blockchains, explaining their increasing popularity and fundamental workings. It discusses the origin of blockchains, dating back to 1991, and their initial purpose of timestamping digital documents to prevent tampering. The paragraph then shifts to the adaptation of blockchain by Satoshi Nakamoto in 2009 for the creation of Bitcoin. It outlines the structure of a blockchain as a distributed ledger with blocks containing data, a block's hash, and the hash of the previous block. The immutability of data once recorded in a blockchain is highlighted, as is the process of creating a block and the role of hashes in maintaining integrity. The security of blockchains is attributed to hashing and the proof-of-work mechanism, which slows down block creation to deter tampering. The paragraph concludes by emphasizing the distributed nature of blockchains, where nodes in a peer-to-peer network verify and agree upon the validity of blocks, making it extremely difficult to alter the chain without control over a majority of the network.

05:03

🚀 Applications and Evolution of Blockchain

The second paragraph delves into the applications and evolution of blockchain technology beyond its use in cryptocurrencies like Bitcoin. It mentions the growing interest in blockchain for various purposes, such as storing medical records, creating digital notarizations, and tax collection. The paragraph also introduces smart contracts as a recent development, which are programs stored on the blockchain capable of executing transactions based on predefined conditions. The video script hints at a future video that will explore smart contracts in more detail. The paragraph concludes with an invitation for viewers to learn how to implement a simple blockchain using JavaScript and expresses gratitude for watching.

Keywords

💡Blockchain

A blockchain is a decentralized, distributed ledger technology that records transactions across multiple computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks. It is the foundational technology behind cryptocurrencies like Bitcoin. In the context of the video, blockchain is introduced as a chain of blocks containing information, originally intended for timestamping digital documents to prevent tampering.

💡Satoshi Nakamoto

Satoshi Nakamoto is the pseudonym used by the unknown person or group of people who developed Bitcoin, the first decentralized cryptocurrency. The video credits Nakamoto with the adaptation of the blockchain concept in 2009 to create Bitcoin, marking a significant milestone in the application of blockchain technology.

💡Distributed Ledger

A distributed ledger is a consensus of records, property rights, and transaction details that is replicated and shared across multiple parties in a network. Unlike a centralized database, a distributed ledger has no central storage location. In the video, the distributed ledger is highlighted as an open system where data once recorded is difficult to change, emphasizing the security and transparency of blockchains.

💡Hash

In the context of blockchain, a hash is a digital fingerprint of a block's data. It is a unique alphanumeric string derived from the data using a hash function. The video explains that a hash is used to identify a block and its contents, and any change to the block's data will result in a change in its hash, which is crucial for maintaining the integrity of the blockchain.

💡Genesis Block

The genesis block is the first block in a blockchain. It serves as the starting point of the chain and does not reference a previous block since it is the initial block. The video mentions the genesis block as the special first block in the chain that does not point to any previous blocks.

💡Proof-of-Work

Proof-of-work is a consensus algorithm used in blockchain technology, primarily in Bitcoin, to secure the network and deter fraudulent transactions. It requires some work from the service requester, usually in the form of processing time by a computer. The video describes proof-of-work as a mechanism that slows down the creation of new blocks, making it computationally expensive and time-consuming to alter the blockchain, thus enhancing security.

💡Tampering

Tampering refers to the unauthorized modification of data or information. In the context of the video, tampering is discussed as a potential threat to the integrity of the blockchain, but the use of hashes and proof-of-work makes it extremely difficult to alter the blockchain without detection and without significant computational power.

💡Peer-to-Peer Network

A peer-to-peer (P2P) network is a distributed network where each node has equal privileges and responsibilities. In the video, blockchain technology is described as utilizing a P2P network, allowing anyone to join and receive a full copy of the blockchain, contributing to its security and decentralization.

💡Consensus

In blockchain technology, consensus refers to the general agreement among the nodes of a network about the validity of transactions and the current state of the ledger. The video explains that all nodes in the network create consensus by verifying new blocks and agreeing on what blocks are valid, which is essential for maintaining the integrity and security of the blockchain.

💡Smart Contracts

Smart contracts are self-executing contracts with the terms of the agreement directly written into lines of code. They are stored on the blockchain and can be used to facilitate, verify, and enforce the negotiation or performance of a contract. The video mentions smart contracts as a recent development in blockchain technology, which can be used for automated transactions based on certain conditions.

💡Cryptocurrency

Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates independently of a central bank. The video uses Bitcoin as an example of a cryptocurrency, which was created using blockchain technology, highlighting its significance in the rise of digital currencies.

Highlights

Blockchains are a chain of blocks containing information, originally intended for timestamping digital documents to prevent tampering.

Satoshi Nakamoto adapted blockchain technology in 2009 to create Bitcoin, a digital cryptocurrency.

A blockchain is a distributed ledger that is open to anyone and secure due to its immutability once data is recorded.

Each block contains data, its own hash, and the hash of the previous block, creating a secure chain.

The hash of a block is like a fingerprint, unique and identifying the block and its contents.

Changing data in a block will alter its hash, making it detectable and invalidating subsequent blocks.

The genesis block is the first block in a blockchain and does not reference a previous block.

Proof-of-work is a mechanism that slows down block creation, making it difficult to tamper with the blockchain.

In Bitcoin, it takes approximately 10 minutes to calculate proof-of-work and add a new block.

Blockchains are secured by hashing and proof-of-work, making it hard to tamper with blocks.

Blockchains are distributed across a peer-to-peer network, with each node maintaining a full copy of the ledger.

Nodes in the network verify new blocks to ensure they haven't been tampered with before adding them to their copy.

Consensus among nodes determines the validity of blocks, with tampered blocks being rejected.

To successfully tamper with a blockchain, one would need to control more than 50% of the network, which is nearly impossible.

Smart contracts are programs stored on the blockchain that can automatically exchange coins based on conditions.

Blockchain technology has potential applications beyond cryptocurrencies, such as storing medical records and creating digital notarizations.

The video offers a tutorial on implementing a simple blockchain using JavaScript.

Transcripts

Blockchains are incredibly popular nowadays.

But what is a blockchain?

How do they work, what problems do they solve and how can they be used?

Like the name indicates, a blockchain is a chain of blocks that contains information.

This technique was originally described in 1991 by a group of researchers and was originally

intended to timestamp digital documents so that it’s not possible to backdate them

or to tamper with them.

Almost like a notary.

However it went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to

create the digital cryptocurrency Bitcoin.

A blockchain is a distributed ledger that is completely open to anyone.

They have an interesting property: once some data has been recorded inside a blockchain,

it becomes very difficult to change it.

So how does that work?

Well, let’s take a closer look at a block.

Each block contains some data, the hash of the block and the hash of the previous block.

The data that is stored inside a block depends on the type of blockchain.

The Bitcoin blockchain for example stores the details about a transaction in here, such

as the sender, receiver and amount of coins.

A block also has a hash.

You can compare a hash to a fingerprint.

It identifies a block and all of its contents and it's always unique, just as a fingerprint.

Once a block is created, it’s hash is being calculated.

Changing something inside the block will cause the hash to change.

So in other words: hashes are very useful when you want to detect changes to blocks.

If the fingerprint of a block changes, it no longer is the same block.

The third element inside each block is the hash of the previous block.

This effectively creates a chain of blocks and it’s this technique that makes a blockchain

so secure.

Let's take an example.

Here we have a chain of 3 blocks.

As you can see, each block has a hash and the hash of the previous block.

So block number 3 points to block number 2 and number 2 points to number 1.

Now the first block is a bit special, it cannot point to previous blocks because it's the

first one.

We call this the genesis block.

Now let's say that you tamper with the second block.

This causes the hash of the block to change as well.

In turn that will make block 3 and all following blocks invalid because they no longer store

a valid hash of the previous block.

So changing a single block will make all following blocks invalid.

But using hashes is not enough to prevent tampering.

Computers these days are very fast and can calculate hundreds of thousands of hashes

per second.

You could effectively tamper with a block and recalculate all the hashes of other blocks

to make your blockchain valid again.

So to mitigate this, blockchains have something called proof-of-work.

It's a mechanism that slows down the creation of new blocks.

In Bitcoins case: it takes about 10 minutes to calculate the required proof-of-work and

add a new block to the chain.

This mechanism makes it very hard to tamper with the blocks, because if you tamper with

1 block, you'll need to recalculate the proof-of-work for all the following blocks.

So the security of a blockchain comes from its creative use of hashing and the proof-of-work

mechanism.

But there is one more way that blockchains secure themselves and that's by being distributed.

Instead of using a central entity to manage the chain, blockchains use a peer-to-peer

network and anyone is allowed to join.

When someone joins this network, he gets the full copy of the blockchain.

The node can use this to verify that everything is still in order.

Now let's see what happens when someone creates a new block.

That new block is send to everyone on the network.

Each node then verifies the block to make sure that it hasn't been tampered with.

If everything checks out, each node adds this block to their own blockchain.

All the nodes in this network create consensus.

They agree about what blocks are valid and which aren't.

Blocks that are tampered with will be rejected by other nodes in the network.

So to successfully tamper with a blockchain you'll need to tamper with all blocks on the

chain, redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer

network.

Only then will your tampered block become accepted by everyone else.

This is almost impossible to do!

Blockchains are also constantly evolving.

One of the more recent developments is the creation of smart contracts.

These contracts are simple programs that are stored on the blockchain and can be used to

automatically exchange coins based on certain conditions.

More on smart contracts in a later video.

The creation of blockchain technology peaked a lot of people’s interest.

Soon, others realized that the technology could be used for other things like storing

medical records, creating a digital notary or even collecting taxes.

So now you know what a blockchain is, how it works on basic level and what problems

it solves.

Want to learn how you can implement a simple blockchain with Javascript?

Then checkout this video here.

And as always: thank you very much for watching.