Blockchain Basics

Currently, I am studying Blockchain, bitcoin and cryptocurrency. Blockchain has applicable uses in financial services, healthcare and other industries.  Today, I'd like to discuss Blockchain basics:

Blockchain Basics

“Blockchain” is the record keeping technology behind bitcoin. Blockchain is a chain of blocks, digital information (the “block”) stored in a public database (the “chain”). “Blocks” on the blockchain are made up of digital pieces of information.

There are three parts to blockchain:

• Blocks store information about transactions like the date, time, and dollar amount of your most recent purchase or transaction.
• Blocks store information about who is participating in transactions. A block for your recent purchase would record your name along with the merchant name. The purchase does not record your name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.
• Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block.

A single block on the blockchain can actually store up to 1 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions.

How Blockchain Works

When a block stores new data it is added to the blockchain. Blockchain, as its name suggests, consists of multiple blocks strung together. In order for a block to be added to the blockchain, however, four things must happen:

1. A transaction must occur. Let’s continue with the example of your impulsive Amazon purchase. After hastily clicking through multiple checkout prompts, you go against your better judgment and make a purchase.
2. That transaction must be verified. After making that purchase, your transaction must be verified. With blockchain, verification is done by a network of computers. These networks often consist of thousands (or in the case of Bitcoin, about 5 million) computers spread across the globe. When you make your purchase from Amazon, that network of computers rushes to check that your transaction happened in the way you said it did. That is, they confirm the details of the purchase, including the transaction’s time, dollar amount, and participants.
3. That transaction must be stored in a block. After your transaction has been verified as accurate, it gets the green light. The transaction’s dollar amount, your digital signature, and merchant’s digital signature are all stored in a block. There, the transaction will likely join hundreds, or thousands, of others like it.
4. That block must be given a hash. Once all of a block’s transactions have been verified, it must be given a unique, identifying code called a hash. The block is also given the hash of the most recent block added to the blockchain. Once hashed, the block can be added to the blockchain.

When that new block is added to the blockchain, it becomes publicly available for anyone to view — even you. If you take a look at Bitcoin’s blockchain, you will see that you have access to transaction data, along with information about when (“Time”), where (“Height”), and by who (“Relayed By”) the block was added to the blockchain.

*Sources - Investopedia