Trust falls into three areas \u2013 Safety, Issuance, and Correctness. You need to feel secure that your financial and transactional information is safe, that it\u2019s not being made public, and it\u2019s not being changed without your knowledge. You need to be sure that when a system accepts, trades, or issues new assets we have can trust that system is functioning as predicted and not double spending. Lastly, you need to feel confident of the system\u2019s correctness and that all of the information is accurate and verifiable.<\/p>\n

This is where Blockchain steps in. Blockchain has the ability to create trust in this new world.<\/p>\n

You may have heard that one of the key components in blockchain is a \u201cdistributed\u201d ledger. If you are in finance you know what a ledger is \u2013 \u201can account book of final entry, in which business transactions are recorded.\u201d To be \u201cdistributed\u201d means that it is duplicated across thousands or even millions of PC\/servers. Each has a copy of the same ledger and the ledger contains all the blocks\/records in the blockchain.<\/p>\n

Note that a Block can contain anything: text, a contract, change of ownership, an insurance policy, anything at all.<\/em><\/p>\n

Because the ledger of all the blockchains is copied across millions of servers around the world we can validate a specific block by comparing the same block across all the other servers and by consensus, determine if any changes have been made.<\/p>\n

This is called a peer-to-peer network since it has no central authority. Consequently, network participants must all agree on the validity of a transaction before it can be recorded in the blockchain.<\/p>\n

Once an agreement has been achieved, it is called \u201cConsensus.\u201d<\/p>\n

<\/p>\n

The process to have all the peers in the network achieve consensus is called \u201cMining.\u201d There are multiple mathematically sound ways of mining, including \u201cProof-of-Work\u201d and \u201cProof-of-Stake.\u201d For this article, we will cover \u201cProof-of-Work.\u201d<\/p>\n

To prove that Consensus has been achieved for a block, the process of Mining has a numerical output called a \u201cProof-of-Work\u201d (POW), also known as a \u201cHash\u201d.<\/p>\n

To perform the Proof-of-Work\/Hashing process is time consuming, BUT it is easy to verify the output as being valid. To be considered a valid transaction every block must have POW\/Hash value to show that consensus was achieved. This verifies that these blocks have not been tampered with or changed after they were added to the blockchain.<\/p>\n

POW or Hashing is actually a fundamental piece of the magic of Blockchain, so let\u2019s dive in a little more.<\/p>\n

Hashing is a mathematical term that means taking an input string, a collection of numbers and\/or letters of any length, and constructing an output number of a fixed-length, that for all practical purposes, is NEVER duplicated no matter what input string is entered.<\/p>\n

Now a Block is actually structured to have two parts, a header and record\/data. As we noted above, the record can be text, a contract, change of ownership, anything.<\/p>\n

You can take any block and \u201chash\u201d it to get a fixed-length number. If you make even the smallest change, say add a space to line 52 on page 3,421 and resubmit it to the hash function, you will get a completely different and unique, fixed-length number.<\/p>\n

Further, I can take millions and millions of transactions and documents, and if I hash them, I will always get a unique fixed-length number for each one.<\/p>\n

The \u201cchain\u201d part of blockchain comes next.<\/p>\n

First, let\u2019s take the block, put it through the hashing function, produce a unique number, and then join the two together.<\/p>\n

<\/p>\n

When another transaction occurs or a new contract is added so we get another block. But this time, we take the Header from Block #1 and hash BOTH the Header #1 AND the New Block. This gives us another unique fixed-length number that now links Block #1 and Block #2. Using the previous block’s header creates an unbreakable chain from one block to the next.<\/p>\n

<\/p>\n

Here is a simplified version. Some implementations have Header #1 and Header #2 in the new blockchain record and so on.<\/p>\n

<\/p>\n

If the possibility of any changes occurs to any block record it is an easy matter to re-hash the block and header and confirm it’s now different.<\/p>\n

Blockchain technology is constantly being tweaked to make various functionality and performance improvements, but the above version will still basically hold true.<\/p>\n

For a programmer, it can be important to understand the deeper technical details of blockchain, but from a business and application viewpoint, it is not necessary. Think of your TV or Microwave \u2013 do you really need to understand the internal electronics to make them work? While Blockchain is currently the \u201cBright and Shiny\u201d object for engineers and journalists, it will become like electricity \u2013 you know it\u2019s there, but you won\u2019t really care how it works. What matters is running your business and having the tools and applications you need, with blockchain embedded in them to ensure trust. Blockchain is fast becoming the secret sauce, or the \u201cmagic ingredient\u201d in many new business models.<\/p>\n