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What is blockchain?
Blockchain is a decentralized, cryptographic data ledger that stores all transactions across a network. Put simply, it is a database that, instead of residing on a central server that can be accessed by anyone, resides on a global network of computers connected to the internet.
1.1 How a blockchain works
Each transaction recorded on the blockchain is verified by several computers (called “nodes”) in the network. Once the transaction is validated, it is added to a new block of encrypted and sealed information. This block is then connected to an existing ‘chain’ of blocks, creating a ‘chain’ of transactions.
1.2 Why blockchain technology is important
By using cryptography, blockchain technology protects transactions from any attempted fraud or cyber attack. Once a transaction has been recorded on the blockchain, it cannot be altered or deleted.
In conclusion, if you were wondering “what is blockchain”, simply put it is a method of storing and transferring data in a decentralized, secure and transparent way.
Bitcoin, the first cryptocurrency created on a blockchain
Over the last few decades, Bitcoin and blockchain technology have completely transformed the way we think about money, transactions and technology. Bitcoin, the first cryptocurrency created on a blockchain, was launched in March 2009 by Satoshi Nakamoto (this is a pseudonym, in reality the real name of the person or persons who created the cryptocurrency is unknown). Bitcoin was envisioned as a decentralized alternative to traditional money, with the main aim of eliminating middlemen from financial transactions.
2.1 Here below is some useful information about Bitcoin
Mining the first block (Genesis Block):
1. The first block in Bitcoin history, known as the Genesis Block, was mined by Satoshi Nakamoto on January 3, 2009.
2. The first Bitcoin transaction was recorded in this block, which marked the beginning of a revolution in the financial world.
3. Genesis Block is considered the cornerstone of blockchain technology. It demonstrated for the first time in history how a decentralized financial system can work.
About Bitcoin:
1. Bitcoin uses a blockchain network to record all financial transactions conducted between users.
2. Each transaction is grouped into a block, which is then verified and added to the existing blockchain.
3. Miners solve complex mathematical problems, and the first to find the solution gets the right to add the block and is rewarded with Bitcoin (this process is called proof-of-work).
4. Once confirmed, the transaction becomes permanent (it cannot be changed later) and can be verified by anyone on the network.
The basic principles of blockchain technology
Blockchain has solved three major problems of digital technology: decentralization, transparency and immutability.
3.1 Decentralization – The power of the distributed network
One of the most important aspects of blockchain technology is decentralization. Unlike traditional databases, in a blockchain there is no central server in absolute control of the data. What a blockchain is we’ve already seen, we’ll explain how it works below.
How does it work?
Data is stored simultaneously on all nodes of the network.
Each node has a complete copy of the blockchain.
Decisions are made by consensus (consensus protocols such as Proof of Work or Proof of Stake).
What are the benefits for users and businesses?
Advanced security: Due to the distributed network, a hacker would have to compromise more than 50% of the nodes to control a blockchain, which would be extremely difficult.
Data privacy: No central entity can use or sell your data without your consent.
Reliability: If one or more nodes go down, the network remains operational.
3.2 Transparency – Everything in plain sight
Another fundamental pillar of blockchain is transparency. Every transaction performed on the blockchain is publicly recorded and can be viewed by anyone.
How does transparency work?
Each blockchain contains a list of transactions that can be verified by users.
Transaction data is accessible to anyone via a blockchain explorer.
Advantages of transparency:
Breach of trust eliminated: Whether we are talking about financial investments or supply chains, any interaction can be audited.
Increased consumer confidence in the products they buy: Consumers know exactly what they are buying because they have access to the full product history.
3.3 Immutability – Once written, never erased
A basic principle that differentiates a blockchain from other technologies is immutability. Once information is recorded on a blockchain, it cannot be altered or deleted without leaving a trace.
How does it work?
Each block in the blockchain is cryptographically linked to the previous one by a unique hash.
Changing one transaction would require the hash for all subsequent blocks to be recalculated – a process almost impossible on large networks.
Why is immutability important?
High security: Data remains intact and protected against tampering.
Keep a verifiable history: Whether financial transactions, medical data or accounting documents, everything is safely archived.
Accountability: Since all actions are irreversible, blockchain technology eliminates the need for the traditional “trusted” intermediary.
Encryption and hashing in blockchain technology
Hashing and encryption are two fundamental concepts in cybersecurity and software development. If you’re a developer or cybersecurity enthusiast, you’re probably already familiar with these terms. For those who don’t know but are interested, we’ll explain below what they mean, how they work, and their role in protecting data.
4.1 Encryption
Encryption is the process by which data is encoded so that it can only be read by authorized parties holding the decryption key. Unlike hashing, encryption is a bidirectional process, i.e. encrypted data can be recognized and restored to its original form.
In the context of blockchain technology, encryption is the key that protects transactions and shared data. Essentially, it secures information and ensures that it cannot be accessed, altered or tampered with by unauthorized individuals.
Why is encryption important in a blockchain?
Blockchain is built on the concept of transparency and security, and encryption plays a crucial role in ensuring these two qualities.
Here are some reasons why encryption is particularly important:
Ensures sensitive data is protected
Encryption protects personal and financial information flowing over the network, such as account details, transactions or digital identities.
Ensures tam tamper-proof
Thanks to encryption, any change to data in one block is immediately visible to the rest of the network.
Ensures data confidentiality
In a blockchain, only those with the right key can decrypt the information. Users can therefore enjoy a very high level of privacy.
Resistance to cyber attacks
Thanks to advanced encryption, blockchain is considered one of the most secure technological solutions against hackers.
Encryption algorithms used in blockchain
The most commonly used algorithms include:
1. SHA-256 (Secure Hash Algorithm)
This algorithm is mostly used to secure transactions by creating unique and irreversible hashes.
2. ECDSA (Elliptic Curve Digital Signature Algorithm)
ECDSA is used for digital signatures and provides transaction authentication. Important due to high efficiency and security.
3. AES (Advanced Encryption Standard)
AES is used to encrypt and decrypt data stored on blockchain networks. It is popular due to its speed and resistance to attacks.
4. RSA (Rivest-Shamir-Adleman)
RSA is another algorithm commonly used in encryption, especially in private blockchain networks for secure key exchanges.
How does blockchain encryption work?
At its core, the encryption used in blockchain involves two main processes:
Data encryption
Data is transformed into an encrypted format using a cryptographic algorithm so that only holders of a “key” can access it.
2. Data decryption
The authorized person uses the key to transform the information back into its original, readable format.
In blockchain, these processes are essential for validating and authorizing transactions. This is where the two fundamental concepts of encryption come into play:
Public Key and Private Key
Blockchain systems use two-key encryption – the public key (available to everyone) and the private key (which must be kept secret).
Hash functions
Another key element is the hash, used to create a unique “fingerprint” of the data. This helps to verify the integrity of information without revealing its contents.
4.2 Hashing
Hashing is a method of transforming any type of data into a unique series of fixed-length characters called a hash. It is one of the fundamental technologies underlying the functioning of a blockchain and is intended to preserve the integrity and security of information.
We can think of hashing as a “fingerprint”. Each data set, regardless of size and content, will generate a unique hash. For example, a small text file and a massive database will produce completely different hashes, but both will be the same length.
Why it matters.
Hashing plays a critical role in blockchain because:
Maintains transparency and integrity: any change in the original data results in a completely different hash, preventing data manipulation.
Ensures security: Hashing helps encrypt information, protecting it from external attacks.
Optimizes the verification process: Validating and processing data in blockchain is fast and efficient due to the fixed nature of hashes.
How Hashing works.
Hashing uses a mathematical function called a hash function to transform input data. Here’s what happens in the general scheme:
1. Input: Any type of data-from simple text to files or transactions.
2. Process: The hash function applies an algorithm to the data.
3. Result: A unique hash of fixed length is generated.
An important point, no matter how long or complex the initial dataset is, the resulting hash will always be the same length. Two different datasets should never generate the same hash (hash collision). This is a basic standard for efficient hashing algorithms.
Example: If you enter the word “password” in a hashing function like SHA-256, you will get a fixed string of characters, such as `5e884898da28047151d0e56f8dc6292773603d0d0d6aabbdd41`. If you change a single character on input, the result will be totally different.
Hashing Algorithms Used in Blockchain
In blockchain technology, several hashing algorithms are used to encrypt and secure information. Here are some of the most popular algorithms:
SHA-256 (Secure Hash Algorithm): the most recognized algorithm, used in networks like Bitcoin. It is very secure and generates 256-bit hashes.
Keccak-256: Adopted by Ethereum, provides a secure alternative to SHA-256.
Scrypt: Used for cryptocurrencies such as Litecoin.
These hash functions are fundamental to running processes such as creating blocks, making transactions and verifying them.
Real Examples of the Use of Hashing in Blockchain
Bitcoin: In the Bitcoin network, hashing is used to validate transactions and connect blocks. SHA-256 cryptographically links each block to the previous block.
Ethereum: The Ethereum network uses hashing to validate smart contracts and to process commercial transactions.
Financial Audit: Some companies use hashing to verify the integrity of supply chains or the accuracy of financial data.
The future of blockchain technology
Developers continue to work on improving blockchain technology and cryptocurrencies. New virtual currencies are being launched all the time and new features are being introduced to the network to make transactions faster, safer and more efficient.In conclusion, although there are still many challenges that will need to be overcome, blockchain technology is revolutionary and certainly has the potential to change the way we interact with money online.