How does the blockchain technology work?

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If you have not read our post on what exactly the blockchain technology is, read it here before you continue. This post will teach you how bitcoin’s blockchain works, which means that other blockchains may not work in the same way. However, this is the most common type, so do not worry. Other types of blockchains are unusual.

 

There are three main technologies which are all combined together to create what is known as the blockchain. It is vital to note that none of these three are new, in fact, they have been around us for a long time. The application and the combination are the new aspects of these technologies that make the blockchain as a whole.

 

1) Private Key Cryptography in the blockchain

Let A and B be two users who want to interact with each other, let’s say, make a transaction.

Each of them holds two important keys. A private key (blue) and a public key (yellow).

Blockchain

The main purpose of this keys is to create a secure digital identity reference. This identity is based on the possession of these two keys, which together create what we call “digital signature”.

This signature acts as our personal signatures which we use to sign contracts for example. No one else has this signature, the combination of these two cryptographic keys is unique, and hence, our security is enhanced. In fact, there are not two equal keys in the whole blockchain.

 

2) P2P in the blockchain

 

P2P stands for peer-to-peer, which is what the blockchain is, a P2P network. Now we understand the use of cryptographic keys to give the users ownership, which is vital in digital relationships. However, there is something very important as well which is authorisation. With the use of these keys, we have solved authentication, but we need to approve transactions and different types of permissions. In the blockchain, this starts with a distributed network.

 

Distributed Network

This can be easily understood with an analogy. Let’s say the pillar of a building fell on the ground and we had a camera filming the moment it was falling. We can be certain that the pillar fell down, thanks to the footage recorded, however, it is still unknown “why” it fell.

 

The blockchain in bitcoin is full of validators (the cameras in the pillar analogy), who reach a consensus that they have all witnessed the same; the pillar has fallen. The only difference is that instead of footage to validate our statement, the blockchain makes use of algorithms (mathematical verifications).

 

This means that the larger the network is, the more secure it becomes. That is one of the reasons why BTC is so valued in the crypto world. It’s so vast as a network, that its security is much better than for those in other blockchains.

 

System of record

When the network is combined with the cryptographic keys, the possibility to make secure transactions emerges. For example, if A wants to send B a sum of cryptocurrency, he takes his private key, and combine it with B‘s public key.

 

3) Program (Blockchain’s Protocol)

 

A ‘block’ containing the digital signature, a time (at which the transaction was made) and the different relevant information is broadcasted through all the nodes located in the network.

Network servicing protocol

Now the big question to the analogy of the pillar is: how do you attract computing power to service the network to make it secure? (in other words, to action as the cameras watching the pillar fall).

 

You have probably heard of mining cryptocurrencies, and this is what it basically means. Saying it in an easy way to understand, it lets users computers do all of the work. With blockchains, by offering your computer processing power to service the network, there is a reward available for one of the computers. The user’s self-interest is being used to help the public, in exchange for an incentive, BTC for example. This is the way in which blockchains work. 

 

With bitcoin, the goal of the protocol is to eliminate the possibility for a bitcoin to be used more than once in a transaction at the same time. This way, we can assure that there is no fraud of users spending more than they truly have. In other words, each BTC is unique and can be treated as gold. To make sure this happens, all of the nodes in the network track all the transactions and keeps them, creating a history of each bitcoin by working to solve proof of work mathematical problems. 

 

The CPUs express their agreement of new blocks if they are ‘safe or correct’ or reject other blocks if they do not surpass the protocol. By adding blocks, it creates the BLOCKCHAIN:

You can observe that it basically looks like a “Rubik’s” cube. Just imagine that every time a block is added, the cube becomes bigger.

It starts off simple:

  Then some more blocks are added:

Even more blocks…

And it continues to grow.

 

We hope you learned something new today. If you have any questions use the comment section below.

 

And as always…

 

Stay Awesome!!

 

 

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