The Inner Workings and Potential of the Blockchain

Updated: Jun 18, 2021

Author: Patrick Lin

Editor: Ken Saito and Peggy Yang

Artist: Denise Suárez

A blockchain is a system for recording information using records called blocks. Each block contains information about transactions and is linked in a cryptographic signature chain called a hash. Blockchains are decentralized, which means that multiple participants can manage them. Additionally, each transaction is recorded by every participant. This system creates a secure system that makes digital information or electronic money virtually impossible to corrupt.

A block in a blockchain is secured using an algorithm called hashing. When a block needs to be added into the chain, it is given a hash in a method similar to that of a random password generator. The new hash is then linked to the hash of the previous block in the chain. The previous block also has the hash of the block behind it. This process of combining hashes creates a system where every single block on a chain can confirm the legitimacy of the adjacent blocks. If a hacker wanted to tamper with a blockchain, they would need to alter each block simultaneously while doing it fast enough to not add a new block during the attack.

The original application of the blockchain technology, bitcoin, was designed to operate without a central authority. In other words, there are no bankers, lawyers, regulators, or governments that can control or verify the information. Before a bitcoin transaction is added as a block in the chain, the transaction needs to be approved by a consensus of nodes or miners. Miners solve a complex puzzle to verify a transaction to receive cryptocurrency rewards for their work. When a new block is added to the chain, it is updated to every node in the system. This adds an extra layer of security for each node that can verify the other nodes. Adding to the example of the hacker from before: even if the hacker were able to alter a bitcoin blockchain completely, they would also need to change a 51% majority of the nodes (around 80,000) to have the alteration verified.

However, no matter how secure the technology is, there will always be a way to cheat it. Most of these methods attack individuals who participate in the chain, and therefore, the blockchain technology itself is not the one at fault. The main vulnerability of the blockchain is within the system of decentralization. If an extensive, widely distributed network of nodes keeps a blockchain, this would not be an issue. The problem is that bitcoin is, in reality, not as decentralized as it may appear. A handful of corporations have the majority of the system’s mining capacity, and if they worked together, they could easily control the entire operation.

Although the primary function of today’s blockchains is used for cryptocurrency, the technology itself can be used to track other information as well securely. Various banks and insurance companies, most notably JPMorgan, have been experimenting with a private blockchain called the Interbank Information Network to simplify transactions and contracts. Blockchains have also been used to track and verify supply chains. For example, De Beers used a private blockchain called Tracr to track the origin of diamonds and ensure they are not blood diamonds. More recently in 2020, a blockchain has been used to connect suppliers and hospitals to buy medical equipment and track people who have immunity to the COVID-19 virus.

 

Citation:

Castellanos, Sara. “A Cryptocurrency Technology Finds New Use Tackling Coronavirus.” The Wall

Street Journal, Dow Jones & Company, 23 Apr. 2020,

www.wsj.com/articles/a-cryptocurrency-technology-finds-new-use-tackling-coronavirus-11587675966.

Iansiti, Marco, and Karim R Lakhani. “The Truth About Blockchain.” Harvard Business Review,

Harvard Business Publishing, 21 Aug. 2019, hbr.org/2017/01/the-truth-about-blockchain.

Orcutt, Mike. “How Secure Is Blockchain Really?” MIT Technology Review, MIT Technology Review,

2 Apr. 2020, www.technologyreview.com/2018/04/25/143246/how-secure-is-blockchain-really/.


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