Fundamentals of Blockchain

Blockchain – Maybe you’ve heard of it, or maybe you have no clue on what it is. Either way, I’m here to shed some light on the data structure that’s disrupting the world of financial services and beyond. By reading this blog, you’ll learn about what blockchain is, where it came from, and what types exist. Alternatively, you can listen to our podcast here, which details the fundamentals of blockchain, as told by two of our Blockchain experts at Luxoft, James Bowkett and Vasiliy Suvorov.

First Things First – What is it?

To put it simply, blockchain is a way to store data. But unlike many forms of data storage, blockchain is highly secure and practically tamperproof. This is due to how the data is organized. Consider the following to understand blockchain and how it works:

• When money transaction data is collected together, it becomes a block.
• A blockchain is comprised of many such blocks.
• To create a new block in a blockchain, take the hash function from the previous block in the chain and include it in your new block.
• If you create an even newer block, take the hash function from the previous “new” block and add it to the newer one.

blockchain-post.png

This is a continuous process, and makes changing any piece of data alter the state of the entire chain. Using blockchain technology makes a ledger of data that cannot be tampered with, or at least isn’t computationally viable to tamper with. This creates a history of data you can always trust.

Where did it come from?

I can’t talk about blockchain without mentioning the famous Bitcoin whitepaper by Satoshi Nakamoto, the pseudonym of an unknown individual or possibly even a group of people. The paper, Bitcoin: A Peer-to-Peer Electronic Cash System, is what gave rise to the blockchain concept. Nakamoto wanted to pitch the idea of sending electronic cash without going through a financial institution. To that end, Nakamoto wanted to increase the trustworthiness of the data, in order to help prevent errors such as double spending and fraud. While only mentioning “chain of blocks”, that paper breathed life into the technology we know today.

Two Kinds of Blockchain

Blockchain technology falls into one of two categories – public or private. Public blockchain, such as BitCoin or Etherium, has no official owner, making it a platform where users can come and go as they please. In addition, anyone can utilize it with new blocks at any point in time, as long as they catch up on the data history preceding their new block. On the other hand, private blockchain is run by third parties, and requires special permission by the platform managers to use. Here is a diagram that outlines the differences between public (permissionless) and private (permissioned) blockchains:

img_2.jpg


Even so, these two categories are not exclusive. You don’t have to write an application so that it runs within the public blockchain; you can take software toolkits and run it privately, as well. This allows for easy data sharing between both private and public blockchains. This makes consensus key to blockchain success, as more than one company could share a blockchain. For instance, one company may be able to share data with another company, but both can always trust the data they receive. This is especially true since the data can’t be altered once imputed into the original chain.

Which blockchain platform should you choose?

Not all blockchains are created equal, as many run differently from each other. Some allow you to execute code, while others may not, for instance. There are a growing number of platforms, and their creators are constantly making it easier for enterprises to gain access to them.

In our next blog, we’ll talk about why businesses should take notice of blockchain and consider utilizing it to their benefit. Look forward to it!


Find out more about our Blockchain practice.

Comments

Not to be published