What is blockchain? How is data stored on blockchain? Future blockchain applications

A blockchain is the technology behind the popular cryptocurrencies such as bitcoin, ethereum but its applications are endless. It can be used to solve diverse problems
in our digital world.

What is blockchain?

A Blockchain is a way of storing information where the information on the blockchain cannot be changed, manipulated and tampered. As the name suggests, a blockchain is a chain of blocks that are linked to one another and if any change is made in any of the blocks the whole blockchain will become invalid and the change will get rejected.

Now let us try to understand what is a block in Blockchain?

A block contains three things, Data, Hash of the block and the Hash of the previous block. The data that is stored in a block depends on the type of blockchain. For example in bitcoin blockchain, the data that are stored in the blocks are the transaction details such as the sender, receiver and the amount of bitcoins that are being transferred.

Now coming to Hash of the block, a hash is a unique string of characters and is similar to a fingerprint. The hash is generated by a hashing algorithm. The hash algorithm takes the data and converts it to a string of characters that are unique. For example, a text “blockchain is awesome” is supplied to the algorithm, it will generate a hash such as “axbytqaetvrqs”, the length of hash depends on the algorithm. This algorithm is irreversible which means it is impossible to get back the original text from the generated hash. And also by changing just 1 character on the original text will generate a totally different hash. For example, in the text if we modified it to “blockchain is wesome” the generated hash will look totally different such as “uriowpytijnew”.  Thus, it is safe to say it is irreversible.

A hash is one of the methods to help secure a blockchain. Now that you have an idea of these concepts, let's store some data on our blockchain. Consider our blockchain having three blocks, block 1, block 2, block 3.



As we have already learnt that a block contains three things, we can see block 1 has a previous hash, which is the hash of the block before it, the data that we want to store in the block and the hash of the block itself. Block 2 also contains the data in the same manner and so is block 3. Now, let’s say the data in block 1 is tampered, this leads to the change of the hash in block 1 and since block 2 contains the previous hash of the original block 1, this will be considered invalid and be rejected and therefore changing a single block will make all the following blocks invalid.

But hashing alone can’t prevent tampering since computers these days are fast and if you temper with a block, with enough computing power the new hashes of all the blocks can be easily re-calculated and stored on the blocks making the new changes valid. So, in order to tackle this, blockchain uses a concept called “Proof of Work”. Proof of work is a way of adding new blocks to a blockchain. It is a way of confirming and recording transactions without a central authority. In bitcoin, it takes about 10 mins to calculate the required Proof of Work before adding the block to the blockchain and it requires a huge amount of computing power. Whichever devices or nodes on the network of the blockchain complete the required Proof of Work first, will get their blocks to be added to the blockchain and be rewarded. Hence, this process makes it hard to tamper with the blocks because if you tamper with one block you have to recalculate the Proof of Work of all the subsequent blocks.

Besides hashing and Proof of work, a blockchain uses one more mechanism to secure itself and it is called decentralization which means there is no central authority. In a decentralized system, a network of devices or nodes is present and a full copy of the blockchain is present in each node. When a new block is created it is sent to all the nodes on the network where each of the nodes would verify that the block has not been tampered and after the majority of the blocks agree, the block would be added to the blockchain. Now, in order to tamper with the blocks, you would need to take control of 50% or more of the nodes on the network, which is not an easy job to do. In the case of bitcoin, considering there are millions of nodes on its networks it would be impossible to take control of 50% or more of the nodes.

These three mechanisms are what make a blockchain secure and be able to provide transparency which is what makes the blockchain technology a necessity in the modern world and is gaining huge attention in every major industry of the world.

Let us now look at some of the scenarios in the real world where blockchain could be used and be a major game changer.

Let’s say in the education system of India, if the CBSE board of exam were to use a blockchain to store all of its student’s transcripts, then the first benefit would be that nobody could create fake transcripts ever again or alter their existing marks. This would be a game changer for the country considering it is still a common practice by some people to alter their marks to benefit them. Blockchain will put an end to that.

But you might be worried about the transparency of a blockchain considering the transcripts are very personal. Now, let’s see how a blockchain can also ensure privacy for the students. And this is achieved by using a public and private key pair.

Now what is this public and private key pair? You can think of the public key as your bank account number and the private key as your ATM PIN, or signature that provides control over your account.

Let’s understand it this way, the public key is like your email address and the private key is the same as the password. Using your email address, anyone can send you an email but only you can read it using your password. Just like an email address, the public key can be shared but like a password, a private key must be kept private at all times.  

By using very complicated math a public key is generated from a private key which makes them a matched pair. When you make a transaction using your public key, you verify that it’s really you by using your private key. So, in case of the student’s transcripts, each and every student on CBSE board would be given a public and private key. And before the transcripts are stored on the blockchain they must be encrypted with the public key which can be viewed later on, only after decryption using their private key. This will make the blockchain both secure and privacy protected.

Another real life scenario where blockchain could be a game changer is in Banking.  Cryptocurrencies are getting more and more popular day by day. One of the main reasons cryptocurrencies are gaining popularity is because they are decentralized in nature which means there is no central authority such as banks to keep track of it but instead it is run by blockchain which comes with security and transparency. Millions of people around the world already own different types of cryptocurrencies such as Bitcoins, Ethereum, LiteCoin etc.If more and more businesses and financial institutions would accept cryptocurrencies as a payment then central authority such as banks would soon become obsolete. At present, many businesses have already accepted bitcoin as a payment, Tesla, a major car company; have already accepted bitcoins in the past. And many more will continue to do in the future.

Digital Identity is also where blockchain could be a game changer. A blockchain based identity system provides a tamper proof infrastructure. Nobody can impersonate or create a fake id again. This would ensure protection against theft and provide safety to citizens.

One more example where blockchain could be useful and be a game changer is in the Election Process of a country. Voter fraud has always been a great concern. Imagine if you could cast your votes and actually verify that your votes are counted. This would ensure transparency in the voting system and elect the rightful candidate. This would bring a fair election and would benefit the country greatly.

According to a report by 2030, blockchain could be used as a foundational technology for 30 % of the global customer base. By 2025, blockchain would add a business value that will grow to over $176 billion dollars. This would further increase to $3.1 trillion by 2030.
This all shows the potential of a great technology.