Understanding Blockchain for Business - Building your first Blockchain
Blockchain: As stated in my previous post, Blockchain is the technology that underpins the application known as Bitcoin. This Blockchain began life in the mind of Satoshi Nakamoto. Mr. Nakamoto envisioned a digital currency less a trusted third party and dependent upon a replicated and shared ledger to ensure monies are not “spent twice”. His vision, the Blockchain replaced the trusted third party.
So, how exactly does a Blockchain work?
First, you start with a Transaction; these can be any length in size. You then subject your transaction to a strong One Way Hash (OWH) Algorithm. The output from a OWH is known as a Message Digest (MD), these are fixed in length. Strong Hash Algorithms should uniquely represent the original message, all server platforms support hashing. Certain platforms are real strong at it. Ideally, you want to invest in Server Solutions that leverage processor technology that provides hardware assists when hashing is performed. Doing so will ensure excellent responsiveness and the ability to scale.
A OWH might look something like this….
Several Transactions would exist and each transaction within a set that makes up a block is fed through a program that creates these unique encrypted codes known as the hash value.
A transaction block might look something like this….
Second, the Unique Hash Values are assembled into something called a Merkle Tree. In cryptography, these trees are useful because they allow efficient and secure verification of the contents of large data structures. Needless to say, Blockchains have the potential to become quite large over time.
Third, The result of all this hashing goes into the new block’s header, along with a hash of the previous block’s header and a timestamp.
This new Block looks something like this….
Fourth, As it relates to the Bitcoin application, now we start to consume a bit of electricity. This newly formed header becomes part of a cryptographic puzzle solved by manipulating a number called the nonce. Across the Bitcoin Blockchain network, miners grind through trillions and trillions of possibilities looking for this answer. When a miner finally comes up with a solution other nodes quickly check it (solving is hard but checking is easy), and each node that confirms the solution updates their Blockchain accordingly. This process is known as the "Proof of Work" and all nodes that are part of the Bitcoin Network perform this. The node that solves the puzzle receives a Bit of Coin and earns the right to post it's transactions to the ledger. This is how Bitcoin elects their "leader". The IBM OBC Gifted Fabric does not do this. Instead, Leader Selection is rather simple and Consensus Algorithms are used to drive transactions onto the Digital Ledger.
This process looks something like this….
Finally, the hash of this new header becomes the new block’s identifying string, and that block is now part of the ledger.
My next Blog Post will review the challenges common to this approach and how IBM's Code Drop set out to correct them to ensure Digital Ledgers are truly Business Enabled.