Blockchain basics - what is it and why is it safe?

What is Blockchain?

How can we explain something seemingly complex in a simple, understandable way? Well, through an analogy! Let's imagine a classic accounting system. Amidst a pile of documents, invoices, and reports stored behind closed doors or on the hard drives of a central server, there are ledgers containing data on various transactions. Blockchain serves exactly the same purpose.

So, we've learned that blockchain does practically the same thing as current accounting systems. However, it does it in a much better, more transparent, and secure way.

What's the deal with security?

Let's go back to the classic accounting systems. In both the paper and digital versions, data is stored in one place, namely, a centralized database. They say that "accidents happen". Fire, flood, hurricane - sheets of paper don't fare well against the forces of nature. The same applies to digital databases. Equipment failures also come into play.

Okay, but no respectable accounting office or data center will store their database in a single copy. Backups are essential, or rather common sense. Granted, a valid argument. So, let's talk about data integrity and "bad actors".

Let's assume that one of the employees of the accounting office wants to risk their professional career and make unauthorized changes to the documentation. Firstly, it will result in a considerable number of inconsistencies between different documents. If these documents exist in several copies, they will also become inconsistent with each other. This is an extreme case, but even if we assume that the changes were made legally, they would need to be replicated in all copies of the database. This, in turn, consumes a lot of time and also introduces the risk of compromising data integrity.

In today's world, where "information is power," it is essential to protect the integrity and security of data. Sure, you can create countless copies of information. On the other hand, each change in the database will require updating all its copies. In this way, we sacrifice integrity for security. It also works the other way around - if data is stored in only one copy, integrity will no longer be a problem. The problem is that the level of security of such data leaves much to be desired. If only there was a technology where security and data integrity go hand in hand...

Blockchain to the rescue!

Blockchains possess a very significant feature that sets them apart from other data storage technologies. It's called decentralization. In the case of classic databases, all information is stored in one place, for example, on a server. All clients, meaning individuals interested in accessing the data, connect to the server and gain access to the information. Blockchain works entirely differently. There is no central server. Instead, data is stored in a vast network of computers, also known as nodes. All computers are equal, forming a digital peer-to-peer network.

How does this relate to security? If all network nodes are equal, then they all store copies of the database. An unauthorized change will be detected by the remaining nodes and corrected. In the case of desired changes, an automatic update will occur for every node. The more participants in the network, the higher the level of security, as with each additional node falsifying data becomes more difficult. It also becomes impossible to change transaction history. Every change in the blockchain remains there forever, and all network participants have insight into it.

Let's describe the above with an example. Imagine an accounting company that stores data in a blockchain. Mr. Mark has just entered data regarding a certain transfer. However, he made a mistake and asked his colleague to completely remove the entry from the blockchain. Mrs. Martha, who deals with blockchain matters, sadly informed Mr. Mark that the data cannot be simply deleted. It has already been synchronized with all the nodes and will remain in the blockchain forever - no matter how embarrassing it may be. The only option for correcting the data is to update it, which will be recorded in the blockchain as an entirely new event. All blockchain users will have access to the original mistake and its correction. Concealing information is not possible under the watchful eye of the blockchain.

Transparency as an additional layer of security

Above, we mentioned decentralization, which is a key component of the security level offered by blockchain technology. The decentralized nature of blockchains means that no single entity has control over the entire system, making it secure and resistant to increasingly common manipulations and cyber-attacks. This is a huge benefit when comparing blockchain to traditional transaction verification methods in today's digital ecosystem.

Decentralization of blockchains also contributes to greater transparency. In this way, each entity has the ability to view all transactions on a given blockchain. This transparency is particularly crucial in industries where trust is paramount. We are talking about financial services, supply chain management, and healthcare. Furthermore, blockchain allows transactions to be verified automatically, eliminating the need for intermediaries. As a result, transactions are faster and cheaper.

Summary

We've learned that blockchain can be seen as the next generation of digital accounting systems. It not only offers functionalities provided by existing technologies but surpasses them in many aspects. The decentralized nature of blockchains positively affects security and transparency. No risk of data loss, no hiding facts, and no possibility of data manipulation. All users of the blockchain are equal and have access to all transactions.

This is only the first of three articles dedicated to blockchain basics. In the next part, we will discuss the applications of this technology and the areas (beyond cryptocurrencies) where it has already been implemented.