How does a blockchain work – Simply Explained

How does a blockchain work – Simply Explained

Blockchains are incredibly popular nowadays. But what is a blockchain? How do they work, what problems do they solve
and how can they be used? Like the name indicates, a blockchain is a
chain of blocks that contains information. This technique was originally described in
1991 by a group of researchers and was originally intended to timestamp digital documents so
that it’s not possible to backdate them or to tamper with them. Almost like a notary. However it went by mostly unused until it
was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin. A blockchain is a distributed ledger that
is completely open to anyone. They have an interesting property: once some
data has been recorded inside a blockchain, it becomes very difficult to change it. So how does that work? Well, let’s take a closer look at a block. Each block contains some data, the hash of
the block and the hash of the previous block. The data that is stored inside a block depends
on the type of blockchain. The Bitcoin blockchain for example stores
the details about a transaction in here, such as the sender, receiver and amount of coins. A block also has a hash. You can compare a hash to a fingerprint. It identifies a block and all of its contents
and it’s always unique, just as a fingerprint. Once a block is created, it’s hash is being
calculated. Changing something inside the block will cause
the hash to change. So in other words: hashes are very useful
when you want to detect changes to blocks. If the fingerprint of a block changes, it
no longer is the same block. The third element inside each block is the
hash of the previous block. This effectively creates a chain of blocks
and it’s this technique that makes a blockchain so secure. Let’s take an example. Here we have a chain of 3 blocks. As you can see, each block has a hash and
the hash of the previous block. So block number 3 points to block number 2
and number 2 points to number 1. Now the first block is a bit special, it cannot
point to previous blocks because it’s the first one. We call this the genesis block. Now let’s say that you tamper with the second
block. This causes the hash of the block to change
as well. In turn that will make block 3 and all following
blocks invalid because they no longer store a valid hash of the previous block. So changing a single block will make all following
blocks invalid. But using hashes is not enough to prevent
tampering. Computers these days are very fast and can
calculate hundreds of thousands of hashes per second. You could effectively tamper with a block
and recalculate all the hashes of other blocks to make your blockchain valid again. So to mitigate this, blockchains have something
called proof-of-work. It’s a mechanism that slows down the creation
of new blocks. In Bitcoins case: it takes about 10 minutes
to calculate the required proof-of-work and add a new block to the chain. This mechanism makes it very hard to tamper
with the blocks, because if you tamper with 1 block, you’ll need to recalculate the proof-of-work
for all the following blocks. So the security of a blockchain comes from
its creative use of hashing and the proof-of-work mechanism. But there is one more way that blockchains
secure themselves and that’s by being distributed. Instead of using a central entity to manage
the chain, blockchains use a peer-to-peer network and anyone is allowed to join. When someone joins this network, he gets the
full copy of the blockchain. The node can use this to verify that everything
is still in order. Now let’s see what happens when someone creates
a new block. That new block is send to everyone on the
network. Each node then verifies the block to make
sure that it hasn’t been tampered with. If everything checks out, each node adds this
block to their own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and
which aren’t. Blocks that are tampered with will be rejected
by other nodes in the network. So to successfully tamper with a blockchain
you’ll need to tamper with all blocks on the chain, redo the proof-of-work for each block
and take control of more than 50% of the peer-to-peer network. Only then will your tampered block become
accepted by everyone else. This is almost impossible to do! Blockchains are also constantly evolving. One of the more recent developments is the
creation of smart contracts. These contracts are simple programs that are
stored on the blockchain and can be used to automatically exchange coins based on certain
conditions. More on smart contracts in a later video. The creation of blockchain technology peaked
a lot of people’s interest. Soon, others realized that the technology
could be used for other things like storing medical records, creating a digital notary
or even collecting taxes. So now you know what a blockchain is, how
it works on basic level and what problems it solves. Want to learn how you can implement a simple
blockchain with Javascript? Then checkout this video here. And as always: thank you very much for watching.

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About the Author: Oren Garnes


  1. so im a little confused on why block-chain would be preferred instead of current banking,amazon, etc. Is the security of the transaction the sole reason pushing people to blockchain?

  2. My brau, this is absolutely the best explanation of blockchain I have ever seen. The problem with others is that they have not actually done it, I’m guessing!

  3. My brau, this is absolutely the best explanation of blockchain I have ever seen. The problem with others is that they have not actually done it, I’m guessing!

  4. Awesome explanation! My lucky day that I needed to understand blockckains and came upon your video first. I am now a subscriber 🙂

  5. hi, thanks for your help but my question is that how can we store medical records or e-notary files and retrieve them when we need if the block is hashed? and we know that the hash function is a one way function, i would really appreciate any help

  6. So what does he mean when he says “anyone can join” and “it’s a p2p network”
    How does someone “join”? Is this blockchain stored on someone’s hard drive or in the cloud or what? I’m having trouble understanding where this information of the blockchain is being stored

  7. Honestly i like this video man .You can still make so much money despite the current fall in bitcoin .For me,I knew the price will run up more, then bleed off and go lower than current lows… Then as it goes higher, Its more like a time pattern , so i am sure that bitcoin will rise, for now all we need to do is invest what we’re Hodling and make more profit, So we don’t feel the lost in fall of price when it happens again, i stumbled upon a comment of someone who helped in increasing of Portfolio of a lady from having *4BTC to 10BTC in two months, i So i contacted him even though I was skeptical, Behold I have made 2Btc in 1 month with his working strategies, if you have lost so much during fall or want to increase your portfolio like me, Reach him on Email Richardtradings00[email protected]

  8. Great vid, thank you. Just one question, you mention at 4:02 "the note" is this slang for a person who is acting as a digital notary?

  9. Just discovered it! For anyone else wondering, "Peer-to-peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the application. They are said to form a peer-to-peer network of nodes (points in a network or diagram at which lines or pathways intersect or branch)."

  10. So if there are at least 51% of the peer can control the network, then the peer can 'force' to temper block and make everyone in concensus?

  11. Don't put all your eggs in 1 basket. Bitcoin will always be around because of the coin exchanges and its own blockchain. I Ran into a video in Feb Early this year, I found so many people showering Accolades to a man named Larry Abdelnour who has made a great Impact to so many young crypto investors since last year, some said he has the best strategy to trade Bitcoin,I was tired of Gdax and Binance small profits i was getting, so I reached out to him and he gave me the best tips to excel in the world of Crypto. Now I don’t just Hodl, I make more Gains, after 3months I can Boast of increasing my Portfolio from 4Btc to 19Btc*, all Thanks to Larry’s Almighty Formula for Trading, Y'all can reach out to him through his, and Mail * *([email protected])

  12. 4:13 HOW do they verify it hasn't been tampered? This is the key to chainblock and you went right over it as if nothing….

  13. If the disasters hits or electricity taken down, all your savings disappear. Who will benefit, of course bankers.All this technology is scary. Only few goes for this, most don't understand and don't needed it. Most population live from paycheck to paycheck,that's why they don't need it, and feel best when they have cash in their hands.Any way it takes decades to get used to it.

  14. The way you explained is amazing. Thank you so much it feels like soon i will become blockchain expect if start implementing block chain from your videos. God bless you great work

  15. So what happens if someone does a fake transaction – fraud? Then that block gets sent out to everyone, and now it's nigh impossible to set things right?

  16. What if one day A.I. is able to tamper with all the blocks and take over 50 percent of the p2p network. Wouldnt A.I. render the fundematal benefits of blockchain useless. And it would control the entire trading system. This is a nightmare scenorio waiting to happen.

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  18. I still can't understand how someone can validate whether someone is telling the truth about something they want to add to a block i.e Amanda owns this piece of land and wants to create a block stating this. But what if she's lying? Miners don't have a right to validate whether that's true through solving a mathematical question. What am I missing here…!?

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  20. If a block needs to be confirmed before added, wouldn't at least 50% of the populace be required to be online at the same time? What service sends the # of required pings to each machine to confirm it has reached 50%? And what is preventing that ping from being malicious and corrupting the entire network?

  21. @2:33 where you failed to explain: 1- How the hash got changed? 2 – How the new hash is created? and most important of all 3 – what is a hash?

  22. So "the hash" is made from the data inside the block? So then if the data is changed … corrupted … then the hash is changed sounds like. Guessing there is some kind of "algorithm" somewhere that is used to generate the hash?

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