Well, here’s everything you need to know about blockchain – in simple, jargon-free language. What exactly is blockchain, and how is it related to any of the other concepts mentioned above?
What is a blockchain?
A blockchain is a ledger that is shared amongst many different electronic devices. Let’s unpack that.
- A ledger is a record of information or a database. Think of an accounts book or an excel sheet as rough examples.
- This ledger is shared across “nodes”. This is what the Web3 community calls “distributed” or “decentralised”.
- These electronic devices carrying copies of the shared ledger are what the Web3 community call “nodes”.
Here’s a more detailed analogy:
- Imagine a cloud-hosted document that has been shared with many individuals within a network
- The difference is that there is no single online working document, but many local copies of the document on every single one of these individuals’ devices.
- Every participant is able to add to their own local copy of the document, but the rest of the network must approve the addition before it is authorised
- The local copies in every individual’s devices across the network are then updated in real time to reflect the authorised changes
Sometimes, blockchains are also known as a type of Distributed Ledger Technology (DLT) – a kind of technology that allows a database to be shared and maintained across a network of “nodes”.
How do blockchains work?
Blockchains are databases, but how do they store data differently from traditional ones? What makes a blockchain more special than simple data tables?
Any information that is uploaded onto the blockchain (or what the Web3 community calls “written to the blockchain”) is compiled into “blocks”. These blocks can store any kind of information, even detailed key information, such as:
- Who owns the asset
- What the asset is
- When the asset was moved
- Where the asset was moved
- How much of the asset was moved
- Other auxiliary data, e.g. temperature (for supply chain applications)
The new block will then be linked to the latest block in the blockchain in sequential, chronological order, thus forming a “chain” of data. Therefore, this type of Distributed Ledger Technology is known as blockchain technology.
The entire network will automatically have their copies of the ledger updated to reflect this latest version of the blockchain.
Benefits and implications of storing data with blockchain
- Permanent records of information and transactions
This is what the Web3 community calls “immutability”.
Information stored on the blockchain can never be tampered with or changed:
- This is because anything written to the blockchain must be validated by the entire network of nodes
- Attempts at tampering with past data require writing tampered information to the blockchain from a node
- However, since every single node has the latest copy of the blockchain, nodes in the network can cross-reference each other and recognise any attempts at tampering with past data by identifying the node with the incorrect information
- In this case, a block will not be created since the information is incorrect
This means blockchains have an exact and transparent order of events and transactions that can never be tampered with.
- Total transparency
All transactions can be viewed by anyone on the blockchain. Blocks, and their contents, are accessible to all participants of the blockchain network.
- Improved data privacy & data authentication
Records stored on blockchains can be encrypted to preserve privacy. This means data owners are able to “hide” the true nature of the data they are writing onto the blockchain – also known as “data obfuscation”. While the true nature of the data is hidden, the transaction taking place can still be seen and validated by everyone on the network.
One way to do this is through “cryptographic hashing”, where an alphanumerical string of characters (i.e. a hash) is produced to represent the information that is being recorded. If this information changes in any way, the hash of the edited copy will be completely different from the hash of the original copy.
Thus, instead of writing the information wholesale onto the blockchain, the hash of the information is written to the blockchain instead to create an immutable record of the original information, provide an easy way to verify the information presented outside of the blockchain (by comparing the hash of the presented information with the hash written to the blockchain), and preserve data privacy.
An example of this would be how Accredify works with healthcare providers around the world to issue instantly verifiable, tamper-proof COVID-19 test results. The test results of a patient contain a lot of confidential and personal information that should be kept private. Hence, Accredify produces a hash of the patient’s test results and writes it to the blockchain. This way, all participants of the blockchain network can see that a transaction involving this hash has occurred, but no one is able to decipher the information that the hash represents. When it comes to verifying the test result, authorities can simply scan a QR code on the test result to recalculate the hash of the document, which will then be cross-referenced against the original hash written to the blockchain. If the hashes match, then it is a valid test result that has not been tampered with.
Another way of encryption is through the use of public-private key pairs.
- Private keys are an identification number known only to the data owner
- These are needed to authorise transactions and prove ownership of an asset
- Think of it as your bank’s PIN!
- Public keys are generated from Private keys
- These are ID numbers that can be shared with others to enable transactions
- Think of it as your bank account number!
- E.g. Persons A and B can share their public keys with each other to facilitate a direct transaction and they will have to input their private keys to authorise the transaction.
Hence, through encryption, blockchain participants can remain anonymous, while preserving the transparency of their transactions.
- Decentralised data ownership
Public blockchains are not owned by any entity. Rather, it is collectively managed by the network, so there is no single entity (or group) that can determine how the blockchain behaves when it comes to data ownership and management.
In addition, with blockchains, individuals and corporations have full control over their own data, and no longer need to rely on third-party service providers to store and secure their data, information, and assets. Such third-party service providers are fallible, whether due to reasons of misbehaviour, security breaches, or system malfunctions. Individuals and corporations are able to store all their information on the blockchain (while obfuscating it, as mentioned above), without worrying about their data getting:
- Stolen by the hacking of third-party data handlers
- Leaked by the misbehaviour of third-party data handlers
- Erased by system malfunctions of third-party data handlers, or if these data handlers cease operations
This means with blockchain technology, individuals and corporations are able to achieve true data ownership while minimising their data security risks stemming from the reliance on fallible third-party data storage handlers.
- Greater data security
Blockchains afford a higher level of data security compared to traditional databases:
- With decentralised data ownership, blockchain participants no longer rely on fallible third-party data handlers to keep their information safe
- With improved data privacy, blockchain participants are able to obfuscate sensitive information while ensuring their transactions are transparent and verifiable
- With immutability, all transactions on the blockchain cannot be tampered with or edited, meaning blockchains provide a single source of truth for all information written to it
Can blockchains get hacked?
While in theory, it is possible to hack a blockchain, the amount of resources required to hack and tamper with one is so astronomical that it is nearly impossible to do so.
The only way to alter the contents of a block after it has been added to the chain is to achieve the majority consensus of the network that the altered content is valid and true
- To do so, an actor will need to simultaneously control and alter the ledgers stored in more than 50% of the nodes in the blockchain, so that the tampered copy is the “majority” copy of the ledger
- This would cause the blockchain network to recognise the tampered version as the “true” copy, and to use that version to validate whether the information is true
Hacking a blockchain is pretty much impossible for these reasons:
- Recall that in blockchains, new blocks are always stored linearly and chronologically. Due to this, each block contains its own hash, the hash of the block before it, and so on. Hence, to alter information on the blockchain, an actor would require enormous amounts of money, time, and resources, as the actor will have to reconstruct every single block on the blockchain since the hashes of every block will now appear different due to different time stamps and information of the altered blocks.
- In addition, remember that the actor will have to do so for all individual ledgers stored in at least 51% of all the nodes in the network? Considering the speed at which blockchain networks are growing (number of computers and copies of the ledger) and the resources required for such an endeavour (which increases as the network grows), it is quite impossible to alter information written to the blockchain.
- Lastly, blockchain network participants would notice the alternations to the blockchain. They would then “fork away” from the point of alternation, and continue building a new version of the chain that has not been tampered with. This would render the attacked version of the blockchain worthless as it would no longer be validated or recognised by the network.
Okay, but what has blockchain got to do with Web3, NFT, and cryptocurrencies?
Web3 is the future of the internet, where data ownership and transactions are all decentralised, i.e. owned by the data owners. Non-Fungible Tokens (NFTs) and cryptocurrencies are types of Web3 assets.
Web3 is essentially built on blockchain technology. With blockchain, we are able to securely decentralise data ownership, which opens up entirely new ways for us to think about digital asset ownership and our interactions online.
NFTs, for example, are non-fungible because proof that an asset is the original copy is written to the blockchain, which we know cannot be tampered with. Furthermore, ownership of the asset can also be written to the blockchain, thus giving rise to the exclusive ownership characteristic of NFTs – if you own an NFT, you are the verified owner of the true copy of the asset.
Cryptocurrencies are currencies of blockchain networks. These are required to purchase Web3 services built on blockchain networks. Your balance and transactions are written to the blockchain. This means you are not able to falsify the amount of cryptocurrencies that you have or are using in a transaction.
In sum, a blockchain is a decentralised ledger that is shared across a network of nodes. It has given us true data ownership over our own information, greater data security, privacy, and transparency. These benefits have created new processes online that very much affect us in the physical world – Accredify’s TrustTech is one example of how blockchain has impacted our physical lives.
Learn more about how Accredify’s blockchain-powered TrustTech can benefit industries such as:
The beauty of blockchain-driven Web3 technologies is that they can be applied in any industry to create greater digital trust, compliance, and process efficiency. We’re already seeing its applications in healthcare, education, aviation, corporate, and defence, and it’s only a matter of time before we start seeing such technologies being applied across all facets of our daily lives!
