An article that appeared in the 1991 issue of the “Journal of Cryptology” by researchers S. Haber and W. S. Stornetta described a technique for implementing digital timestamps on digital documents to protect their authenticity by prohibiting back-dating or forward-dating. While considerably groundbreaking, the idea remained unused for almost two decades until a certain person or group of people known as Satoshi Nakamoto implemented a somewhat similar technique in 2009 to create the first digital cryptocurrency Bitcoin.
The technique now forms the basic working principle behind blockchain technology. Specifically, it involves using a decentralized or distributed ledger to create a system for recording information that is difficult or impossible to change or circumvent. This system is at the heart of cryptocurrencies such as Bitcoin and Ethereum, as well as emerging applications to include the creation of digital assets and non-fungible tokens or NFTs, peer-to-peer asset trading, an anti-counterfeiting solution, and supply chain provenance tracking.
Defining and Explaining Blockchain Technology
But what exactly is a blockchain? What does it represent? For starters, a blockchain is fundamentally a specific type of database that stores data in blocks that are then chained together. A more specific definition and description is that a blockchain is a digital ledger of transactions that is duplicated and distributed across a network of computer systems.
In another similar description, a blockchain is a growing list of records of transactions linked together using cryptography. These records are technically called blocks, and each block contains data or information about a particular transaction. Linking together these transaction records creates a chain of blocks, thus the name “blockchain.”
The information contained in a block includes a timestamp, specific transaction data, other data indicating the number and history of transactions, and a cryptographic hash to record and validate its uniqueness and authenticity. Each new transaction creates a new block linked to a previous block and the entire series of blocks within an existing blockchain.
On the other hand, blockchain technology represents the entire system used for enabling the creation and maintenance of these blocks using a peer-to-peer network of computers. The use of a peer-to-peer network enables the management of a decentralized database by multiple participants, thereby making blockchain technology a specific type of decentralized ledger technology. Note that each time a new transaction occurs on the blockchain, a record of that transaction is added to the ledger of each participant
Understanding Blockchain Technology Further
To explain and understand further what blockchains are, what each block does and represents, and what blockchain technology is, it is imperative to take note of two things: the information contained in a block and the properties of a distributed ledger.
The Information Contained in a Block
Remember that a block is essentially a transaction record. Each block contains data or information about a particular transaction. Take note of the following types of information contained in each block:
• Data: The data stored in a block depends on the type of blockchain. For example, most cryptocurrency blockchains contain the details of the transaction, the sender and receiver within the transaction, transaction timestamp, and the amount of the particular cryptocurrency involved. The ETC-721 NFT blockchain based on the Ethereum NFT standard contains details of the owner and other relevant transaction data.
• Current Hash: Each block also contains a string of unique alphanumeric characters called the hash. The hash is similar to a fingerprint because it identifies a block and all of its contents. Because it is always unique, it also makes each block unique. Note that a change in a block will cause the hash to change. Hence, hashes are useful for tracking and detecting changes made to the blockchain, as well as for preventing altercations within the entire record of transactions.
• Previous Hash: The hash of a previous block is also contained in a particular block that comes ager it, and the current hash of this particular block will be contained in the new block that will be created once another transaction has been made and recorded. The inclusion of a unique alphanumeric identifier of a previous block to a new block effectively creates a chain of blocks.
The Properties of a Distributed Ledger
Each block is unique because of the aforesaid data or information contained in each block. The foundational operational principle of blockchain technology is fundamentally based on the creation and inclusion of transaction data and current hash, as well as the inclusion of previous hash in a particular block to create a digital distributed ledger.
To understand further what blockchain technology is, as well as its characteristics, take note of the following properties of distributed ledger technology and, by extension, the properties of a blockchain:
• Programmable: There are several programming languages used to create, maintain, and propagate blockchains. Program is fundamental to the entire technology because of its dependence on computational processing to execute complex transactions.
• Distributed: All participants within a particular blockchain network have a copy of the digital ledger for complete transparency. Remember that at the heart of this technology is a decentralized or distributed ledger to create a system for recording information that is difficult or impossible to change or circumvent.
• Secure: Each participant records the transaction in their version of the digital ledger using encryption techniques. Because of the distributed nature of the digital ledger, all records are also individually encrypted.
• Immutable: The creation and inclusion of the current hash and the previous hash of a related block in each new block does not only make each block unique but also makes the entire chain of blocks verifiable. Because the digital ledger is distributed, all records are irreversible and cannot be altered.
• Anonymous: Note that the identity of the participants, as well as all the data and information related to their individual identities and privacy, are anonymous. Of course, each participant can also use a pseudonym.
• Unanimous: The role of the participants is to ensure that the record of the transaction is not centralized, and that each of them has its own copy. To authenticate a particular block and the entire chain of blocks, they must all agree to the validity of all involved records of transactions and other pertinent records.
• Time-Stamped: Remember that a solution for ascribing implementing digital timestamps on digital documents was the inspiration behind the current blockchain technology. Nevertheless, a transaction timestamp is recorded in each block.
Pros and Cons of Blockchain Technology
The aforementioned definitions and relevant explanations about blockchain and the specific blockchain technology, as well as the components of a particular block and the characteristics of a digital ledger, provide numerous benefits and, by extension, applications.
For starters, it is important to note that the applications of blockchain has extended from digital currencies and into digital property management and digital licensing, as a solution for monetization digital assets, and further into specific sectors and industries to include healthcare, supply chain or logistics and distribution, and energy, among others.
The key advantages of blockchain technology center on the fact that it is a decentralized digital ledger technology. This defining characteristic provides the foundation for cryptocurrencies and non-fungible tokens, as well as other novel and next-generation applications to include NFT or blockchain gaming.
However, this technology is not without drawbacks. Some of its notable disadvantages include dependence on computing capabilities via a network of computer systems, hardware resource requirements that include large and scalable storage and powerful processors, and financial and environmental costs from power inefficiency due to high energy demand, among others.
FURTHER READINGS AND REFERENCES
- Haber, S. and Stornetta, W. S. 1991. “How to Time-Stamp a digital document.” Journal of Cryptology. 3(2): 99-111. DOI: 1007/bf00196791
- Leible, S., Schlager, S., Schubotz, M., and Gipp, B. 2019. “A Review on Blockchain Technology and Blockchain Projects Fostering Open Science.” Frontiers in Blockchain. 2. DOI: 3389/fbloc.2019.00016
- Xu, M., Chen, X., and Kou, G. 2019. “A Systematic Review of Blockchain.” Financial Innovation. 5(1). DOI: 1186/s40854-019-0147-z