Blockchain — All you need to know II

Photo by Launchpresso on Unsplash

Take - aways

  • So-called hash values ensure the data integrity of blocks in the system.
  • The blockchain is considered tamper-proof.
  • The technology is the technical basis for cryptocurrencies such as Bitcoin.
  • Another important application example for the blockchain is the indubitable proof of ownership.
  • The blockchain is not rigid, it can be varied and further developed.

The data structure of the blockchain: In simple terms, individual data records — the blocks — are chained together in the blockchain like pearls on a string. Each block has the actual transaction data and a block header that contains both the hash value of the previous block and hash values for the transactions stored in it.

The blockchain uniquely identifies owners without recording or revealing their real identity.

But what are hash values? Since data is constantly copied within the blockchain, it must be ensured that two identical data records are really the same and that one data record cannot be manipulated afterwards. This control must be quick and reliable. That is why the data are not compared bit by bit, but only their so-called hash values. Hash values are provided by programmes called hash functions. Imagine any data set, which can be very large. The hash function processes it and outputs a relatively short hash value of numbers and letters compared to the data set (example: 00068A3C).

It is no exaggeration to say that the transaction data history is the heart of the blockchain.

This value can be a kind of digital fingerprint for the underlying data. If there is exactly one hash value for a particular data bundle (determinism) and it can never be predicted (pseudo-randomness), it is a cryptographic hash value, which is a special security feature. To ensure that the data within the blockchain remains the same, the previously generated and stored hash values must be compared with the current hash value. This is always transferred from the previous chain link to the next, so that a unique transaction chain is created. If there is a difference when comparing the hash references, this indicates an error or manipulation.

The hash puzzle: However, the hash values are not simply generated, they must first be found through trial and error as part of a so-called hash puzzle. This works a bit like trying to figure out a combination of numbers on a lock and requires diligence, time and a lot of effort. A task is created in the system that must be solved. For example: Find a still unknown value (“nonce”) that, together with the data set to be encrypted, results in a hash value that starts with three zeros! Here, the node confronted with the task must try out combinations according to the trial-and-error principle. For this “mining” it receives a reward, because otherwise hardly any participant would take on the time-consuming and computationally intensive task.

The increased reliability of a distributed system is due to the fact that the entire computer network can continue to work even if individual computers crash.

But why all this effort? It is deliberate because it makes manipulation more difficult. Manipulating an element of the blockchain (for example, a transaction) means that all blocks and their hash values would have to be recalculated based on the intervention. Since hash puzzles have to be solved anew for this, the effort would be immense — and therefore offers a high deterrent potential.

The limits of the system: The blockchain with its peer-to-peer system is considered censorship-free. There is no one who could simply switch it off. What proponents welcome, however, is a thorn in the side of critics. They complain about the lack of control, what they see as insufficient data protection and uncontrollable growth.

The protection of property primarily involves three elements: the identification and authentication of owners and the restriction of access to property to the owners themselves.

Social, economic, legal and psychological aspects play a role in many reservations about blockchain. Users need some time to get used to new technologies and how they work. Education, new laws and technical improvements can help overcome reservations. In addition, different variants of blockchain technology are conceivable, such as private blockchains that are only available to a select group, for example in the context of commercial applications at banks, insurance companies or retailers.

How you can use the blockchain: The blockchain can be considered a repository for all types of data. The applications that use its methodology can be correspondingly different. Its use is particularly recommended for certain proofs, for example proof of existence or non-existence, a point in time, a sequence, identity, authorship or ownership.

The blockchain data structure takes a radical all-or-nothing approach to changes to its data: either the entire data structure is changed from the point that causes the change to the head of the entire chain, or it is better to refrain from making changes in the first place.

Blockchain systems are further naturally suited for cryptocurrency transactions that function independently of banks and governments. Depending on your requirements, you should familiarise yourself with the system architecture of a blockchain to make sure it meets your needs. Ask yourself what the main purpose of the application is and whether it can add value for you as a user.

Further developments and the future: Technological progress is always accompanied by teething problems, lack of acceptance and unexpectedly emerging challenges. This is also the case with the invention of the blockchain, but each of its technical components continues to be the subject of research and further development. The blockchain is not rigid and unchanging; rather, it forms the basis for evolution and improvement.

The blockchain is a peer-to-peer system with two goals: On the one hand, it allows each of us to enter new transaction data into the collectively kept history. On the other hand, it ensures that the transaction data history is secured against manipulation or forgery.

Despite known weaknesses, some of the services already provided by the blockchain are undisputed, including the accompanying standardisation and automation. Even disintermediation, while having a negative impact on intermediary entities, replaces them with a better solution and thus represents a fundamentally positive development. Automation and standardisation have already had a cost-reducing effect in many industries, which is reflected in lower prices for consumer goods.

If you like this article, I would be happy if you forward it to your colleagues or share it on social networks. If you are an expert in the field and want to criticize or endorse the article or some of its parts, feel free to leave a private note here or contextually and I will respond or address it. More information about can be found here: The heart of your balance sheet — Manage your crypto payments with us preparing for an industry built on blockchain!

M.Sc. Ehsan Allahyar Parsa is head of marketing at the Blockchain Founders Group — a venture capitalist & company builder backing In 2020, he was ranked as one of. the “Top 100 Shapers” in the DACH region. Further, he speaks 10 languages and has traveled to 30+ countries, of which he has already worked in 9 spread over 3 continents. He has already been honored by the Chancellor for his social & political commitment at the tender age of 23. As a sought-after international speaker, the serial entrepreneur is renowned for his speeches on numerous stages like the German Shark Tank Primetime TV Show (DHDL) and the United Nations General Assembly in New York. Feel free to contact him via Mail , Instagram or LinkedIn.




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