Blockchain is a series of data linked together. Every single transaction is linked to the chain using cryptographic principles in batches, making blocks. The blocks are connected to each other and have unique identifier codes (called hashes) that connect them to the previous and the subsequent blocks.
The Three Pillars of Blockchain Technology
The three main properties of Blockchain Technology which have helped it gain widespread acclaim are as follows:
Pillar #1: Decentralization
Before Bitcoin and BitTorrent came along, we were more used to centralized services. The idea is very simple. You have a centralized entity that stored all the data and you’d have to interact solely with this entity to get whatever information you required.
Another example of a centralized system is the banks. They store all your money, and the only way that you can pay someone is by going through the bank.
In a decentralized system, the information is not stored by one single entity. In fact, everyone in the network owns the information. In a decentralized network, if you wanted to interact with your friend then you can do so directly without going through a third party. That was the main ideology behind Bitcoins. You and only you alone are in charge of your money. You can send your money to anyone you want without having to go through a bank.
Pillar #2: Transparency
One of the most interesting and misunderstood concepts in blockchain technology is “transparency.” Some people say that blockchain gives you privacy while some say that it is transparent.
A person’s identity is hidden via complex cryptography and represented only by their public address. So, if you were to look up a person’s transaction history, you will not see “Bob sent 1 BTC” instead you will see “1MF1bhsFLkBzzz9vpFYE mvwT2TbyCt7NZJ sent 1 BTC”.So, while the person’s real identity is secure, you will still see all the transactions that were done by their public address. This level of transparency has never existed before within a financial system. It adds that extra, and much needed, level of accountability that is required by some of these biggest institutions.
Pillar #3: Immutability
Immutability, in the context of the blockchain, means that once something has been entered into the blockchain, it cannot be tampered with.
The reason why the blockchain gets this property is that of the cryptographic hash function.
In simple terms, hashing means taking an input string of any length and giving out an output of a fixed length. In the context of cryptocurrencies like bitcoin, the transactions are taken as input and run through a hashing algorithm (Bitcoin uses SHA-256) which gives an output of a fixed length. So basically, instead of remembering the input data which could be huge, you can just remember the hash and keep track.