Blockchain. What is blockchain? Why is it so… | by Kay | Jan, 2024

What is blockchain? Why is it so controversial?

Blockchain is a chain of blocks. In other words, it’s a sequence of data. A block is a group of data, and a chain is a sequence. Now, let’s dive into each term.

Block

I mentioned the blocks are the data. It can be any type. However, there are siginificant components recommended for the blocks to contain.

• Data : Obviously, each block has to have a group of data.
• Hash : The hash is like an ID generated using cryptography. Think of it as a primary key in RDBMS. Each block has to have a hash.
• Previous Hash : The previous hash is the ID of a block before the current block. It is like a pointer that links a block to another. It enhances the security of a blockchain. Just like the hash, each block has to have a hash of the previous block.
• Timestamp(created_at) : Each block has to have a timestamp of its creation.
• Proof of Work(PoW) : The proof of work is the amount of works taken to derive the current block’s hash.

As I mentioned, these components are not mandatory components. They are just recommended components for the traditional blockchains’ blocks to have. The blockchain technology still needs research to improve. Hence, the above components may change in the future. At this point, the only thing you have to remember is the followings:

1. A block is like a row in RDBMS because it has an unique ID.
2. Each block is linked to the block before.
3. An added block can neither be modified nor deleted because each block notes the hash of the last block of the chain automatically, if any change of a block is tried, the changed block will substitute its previous hash with the hash of the last block of the chain, and the chain breaks, which means it offends the definition of blockchain. No more relationship between the blocks and no more security.

Chain

The chain is not a complicated part. A chain is a sequence. As it was mentioned in the definition of the blocks, the hash of the previous block creates a link between the blocks. The figure below shows a simple example of a blockchain.

That’s it. That is a defition of a blockchain. However, it’s not over. In order to understand blockchain, you have to know how multiple blockchains work. I would like to call this as a blockchain ecosystem.

The above figure shows an example of blockchain ecosystem, which is similar to cryptocurrency network. Before we get into the explanation, you have to keep in mind how the blockchains are alive in the network.

Compare to the traditional online database solutions like AWS RDS, mongoDB, and etc, the blockchains scatters the data into pieces, and save them in each computers with the blockchains. In the blockchain community, these computers are referred as nodes, and the nodes form a huge network, which means a single hardware does not save the data, but the multiple computers all around the world do separately. This kind of behaviour is called Decentralization. It means the center(single drive) does not manage everything. Now, let’s see how the blockchain transactions(adding blocks) are established. Once a node make a transaction, a blockchain tries to add a block to it, and upload the trial to the network. Once the upload is done, the miners detect this transaction trial in the network, and mine(try to break hash) the added block.

• Mining : The mining is a work of finding out hash of a block using decryption techniques like brute-force search. The miners mine the transactions and confirm them because the blockchains offer siginificant number of new blockchains to the miners who confirmed the transactions successfully. In metaphor, the miners mining cryptocurrencies earn money by solving very hard quizzes(finding the right hash values).

Once a miner finds out the right hash, the miner confirms the transaction if it’s valid, and confirm adding the block. If not, the transaction does not happen. Once the transaction is completed, the blockchain with the new block is shared to the network, and all other blockchains in the nodes are aware about the transaction. That’s the basic ecosystem of blockchains. Decentralization, mining, transactions. You will see these terms a lot if you are into blockchain.

• Fun facts : Regarding the spike of bitcoin’s value, you might think mining bitcoin or other cryptocurrencies is more attractive than creating a new blockchain since it seems like you can earn money if you can solve for the difficult quizzes, and it was true in the past. However, there are several problems with mining rewards. The bitcoin halves the amount of reward when every 210,000 bitcoins are released in the network. It’s like radioactive elements decaying by half over the periods. The halvings of bitcoin mining rewards happened in November 28th, 2012, July 9th, 2016, May 11th, 2020, and the next one is about to happen on May 01, 2024. This year. The date might change based on the mining activities, but the halvings happen every 4 years roughly. The halving will happen until the 21,000,000 bitcoins are released. Adding to the halving of the bitcoin mining rewards, the mining requires tons of energy, and the energy required is believed to keep increase because the hash value gets harder and harder to solve as more blocks are added to the bitcoins. This means the cost of mining rises infinitely unless a new search method is invented. Now, could you predict why mining is not attractive enough for the blockchain developers? The cost of mining increases, and the reward of the mining decreaes. At some point, or already is, the profitability of the mining will eventually become negative. Tremendous amount of carbon dioxide emitted by the mining activities is a problem, too.

Other than the problems mentioned in the fun facts, there is another factor that makes the blockchain technology controversial. In order for the decentralization to be established, the new era of web, web3, has to be established because the centralized services has to be gone. To help your understanding, consider the current banking system. The current banking system is manged by the banks, not the individual people. In other words, the centered organizations, banks, control the transactions. However, if the blockchain technology replaces the current banking system, each node executes and approves the transactions and all the transactions are transparent. Hence, the banks are not needed. However, this is not likely to happen in my opinion.

First, if any kind of decentralization happens, the workers working in the centerizing organizations will lose jobs at once, the net income of the countries will fall, and a historical economic crisis might happen at the worst case.

Second, web3 is not likely to be established, and some of the world leading entrepreneurs opinionate that the current definition of web3 is a dream-like concept. I will talk about web3 in the future.

Third, the current blockchain technology is not adequate for the video streaming services. As it was mentioned, the blockchain shatters the data into pieces and distribute them all over the network so that an individual hardware does not need to be worried about saving large amount of data. Remember. We are talking about the structured data. The blockchains had to distribute the data to multiple nodes to save structured data. Will it be able to store multiple videos? As far as I researched, it’s not possible for now. Even if the current blockchain could distribute the zettabytes/ Yottabytes of videos to the nodes somehow, it will have high latency of loading the videos, which the consumers will not prefer because they are already familiar with streaming services like Youtube that load videos with very low latency.

Hence, the developers are trying to apply blockchain technology in the society differently. For example the banking processes, which follow SWIFT protocol, are being tested to be replaced with blockchain technology instead of it replacing the role of the banks. Still, there are more aspects of blockchain technology required to be improved.

This is what I understood about blockchain so far. There are more concepts related to it I want to explain. I will do so in the future postings. Thank you for reading!