What is blockchain?

 

Blockchain seems complicated, and it definitely can be, but its core concept is really quite simple. A blockchain is a type of database. To be able to understand blockchain, it helps to first understand what a database actually is. A database is a collection of information that is stored electronically on a computer system. Information, or data, in databases is typically structured in table format to allow for easier searching and filtering for specific information. What is the difference between someone using a spreadsheet to store information rather than a database?

 

A table row is defined as a set of data, or facts, such as a name, phone number, addresses, email addresses, or anything else, organized into a single row or set of rows in a database. A set of rows, or data blocks, in a database is called a database unit or database. Tables or blocks of data are organized into a database using the principle of rows and columns. Typically, a database contains a variety of different types of data, such as user-id, phone numbers, addresses, email addresses, and salary. Now, how does a blockchain fit into this picture? Blockchain is a type of database because the blockchain is a type of computer file. It is a decentralized distributed database that maintains a copy of all of itself continuously, without the need of a central authority or server. This means that every single node in the network has a full copy of the blockchain, and the data is updated through a distributed consensus. Because the blockchain is decentralized, a significant bone of contention that many blockchain users have encountered is ensuring that everyone ‘s shares the same information. So data can be sent from a single node, say a user, to a whole network of nodes. These nodes are called peers, and what they do in exchange for the information is defined in the protocol (like bitcoin, ripple, or Ethereum). Through a peer-to-peer network, everyone on the network can check to ensure that the information is accurate. If it isn’t, then everyone else on the network (other peers) can update the blockchain, and the problem can be corrected. While most of the information can be verified through this peer-to-peer network, data that is not provable, or true, can be verified through centralized servers. Closing the loop here, when enough of these transactions confirm that the data has been updated, then the blockchain whole network can certify that the information is 100% accurate. At this point, blockchain does make somewhat of an assumption that the company that created the software also owns the server(s) from which it is accessed. Most blockchain users argue that this is a security issue, because the company with access to the server is unable to singlehandedly change the blockchain. More interestingly, there are also arguments to the contrary, like what if a hacker gains access to that server and controls it? This would allow them to manipulate the data, perhaps in an effort to defraud the population of some type of financial gain (hence the term centralized proof of work).

 

At its most basic level, a computer database is simply a collection of cells (typically rows and columns) exactly as shown in the image below. The form of a database can vary from nothing to having rows and columns of different types. Some database systems may also include other system components such as a data warehouse or integration of transactional logging. As a result, a database may resemble a hierarchy that pre-dates the invention of the spreadsheet. Contrast that with the following diagram. Now that we’ve been introduced to what a database actually is, it helps to understand some of the interesting and powerful features that blockchain offers. Blockchain as a technology has the power to open great business opportunities by facilitating an efficient and secure way to store and transfer information. Through distributed ledgers, blockchain allows for shared access that allows companies to speedily and securely discuss business processes without the potential for outside influence or influence from the entity that’s running the process (such as, the CEO of the company). This makes it impossible to cheat, as all of the parties involved in the discussion know the parameters regarding the blockchain that they’re discussing. It facilitates energy efficiency of transactions. All of the blockchain processes are verified, and while it’s possible for someone else to build a replica of the blockchain, it isn’t possible to alter what’s being recorded (without updating every timestamp or change that’s written into the procedure(s)) One of the most important applications of blockchain is in machine learning and artificial intelligence. These applications bring enhanced security not just through ensuring that participants in a transaction (or collaboration) know exactly what they’re dealing with, but also that they have access to the full set of variables from that transaction at the time that it was made (this is called “fair pricing”). As more companies embrace blockchain as a way to better manage their assets and processes, some interesting opportunities will come to fruition: Thanks for reading! If you liked this piece, please have a look at my other work below and follow me on Twitter @LifeisPresence for future updates on my adventures in understanding technology. In each issue we share the best stories from the Data-Driven Investor's expert community.

 

One of the first differences is that a spreadsheet typically stores information in one or more columns whereas a database stores data in rows and columns. A spreadsheet might include the following columns: value, total, names, description, etc. As for the contents of a table, it might look like this: 1 2 3 4 5 You can certainly generate many of these tables from scratch, but unless you’re using the most sophisticated databases available, most of the information you need to create your own might already be stored in a different way. The first step if you’re attempting to connect the dots and understand blockchain is to figure out what a database actually is. According to arguably the foremost expert in the field, “Any newly designed database (beginning with MySQL) must be immutable. Meaning that no update or change to the database will ever cause any data stored in the database to be different than what was in the database at the time of the last successful update. This is because if an attacker attempted to change the contents of the database while it was running as normal, the database would be inconsistent and the database would no longer be secure.” I’m simplifying here quite a bit, but it gets the point across. What this essentially means is that a blockchain is a simplified (yet still effective) way of storing data electronically that has unforgeable. Think of a database as a box that you can contain information in. Each piece of information, or data, can be stored within the box electronically and updated digitally. This data can then be read by anyone (in a decentralized manner) through a gateway (or “computer”) that acts as an intermediary. Anyone can run the software and create blocks of data to be stored in the blockchain, and once they do so, the information can no longer be altered. And since the determinism of the blockchain is a crucial aspect to its safety and security, because no single administrator controls it, it’s impossible for the blockchain itself to be hacked. The genesis block of a blockchain acts as the “mother” for the rest of the blocks, as shown below. A blockchain log is basically a record of all the transactions that have ever occurred within a database. As transaction data is organized using rows and columns, a blockchain log can look like this: This block of code can be downloaded, and a copy of it stored among all other blocks in the blockchain. Blockchain logs could look like this: Now let’s take a moment to see how this works in practice.