An Introduction to Blockchain

What is Blockchain technology?

History of Blockchain

Breaking things down

Benefits of blockchain

What does all this mean?

What is Blockchain Technology?

Blockchain is a system that makes recording of information foolproof, such that it is difficult to alter or cheat the system. It employs the use of a decentralized digital ledger where transactions are distributed and duplicated among all the systems in the blockchain. All individual blocks on the chain contain a number of transactions and every time a transaction takes place; a record of that transaction is added to each participants ledger. This transaction is protected using strong cryptography (a hash) which varies based on the network.

History of Blockchain

Blockchain, as we know it today, is the brainchild of two researchers Stuart Haber and W. Scott Stornetta who started work in 1991 on the first cryptographically secured chain, The aim was to create a system that will churn out documents with timestamps that could not be tampered with. In a bid to further enhance the technology, Merkle trees were introduced to the design to allow the collection of several documents in a block. The concept of Reusable Proof of Work (RPOW) was introduced in 2004 to solve the double spending problem which enables users to verify the correctness and integrity of tokens in real time.

Breaking things Down

A transaction is to occur between Tom and Jane.

All users in the network will typically have two keys: A private and a public key.

Public key: an address that everyone in the network knows of.

Private key: a unique address that only the user has knowledge of.

Tom sends the transaction amount alongside the wallet address (the location where the value is domiciled) of both parties through a hashing algorithm. The output is then encrypted using Tom’s private key, then sent over the network to Jane using Janes public key to ensure that the transaction can only be decrypted/ seen by Jane using her private key.

What does the end transaction look like? The recording of the transaction…….

• The transaction details Tom sends generates a hash.
• A hash is a string of numbers and letters.
• Transactions are always entered in the order in which they occur.
• The hash depends not only on the transaction but the previous transaction’s hash.
• Even a small change in a transaction creates a completely new hash.
• Toms transaction is digitally signed and encrypted for onward transmission.
• The nodes check to make sure a transaction has not been changed by inspecting the hash.
• If a transaction is approved by a majority of the nodes then it is written into a block.
• Jane receives the transaction and decrypts it with her private key
• Each block refers to the previous block and together make the Blockchain.
• A Blockchain is effective as it is spread over many computers, each of which have a copy of the Blockchain.
• These computers are called nodes.
• The Blockchain updates itself every 10 minutes.

Benefits of Blockchain

Improved security

With the help of blockchain, it becomes easy to view, share, manipulate and store digital information securely. The use of cryptographic hashing functions on a transactional basis is important to ensure security and immutability. This is achieved by computing the hash of each block which is based on both the data contained within the block and the hash of the previous block

Traceability

Each time an exchange happens on the blockchain, the details of the exchange is recorded in the blockchain ledger which presents an audit trail to trace and verify where all transactions come from.

Efficiency

The concept of “the middle-man” is removed from any transaction mix because of the decentralized nature of the blockchain, which means that all transactions are done in a peer-to-peer manner, eliminating all unnecessary delays in transactions.

Transparency

Owing to the decentralized nature of the blockchain, all transactions can be transparently viewed which ensures all parties involved in a transaction/exchange cannot disguise the truth.

What does all this mean?

While blockchain technology presents a lot of benefits, we have barely scratched the surface of it, which means that the use cases we have in play today are still quite limited. Though we have seen the great potentials inherent in the technology, especially as it relates to the fields of finance and supply chain, but we are yet to see how exactly it will shape the future, the accompanying risks and the systems of controls that will be layered on the technology.

As technology security and assurance professionals, we are to constantly engage the intricacies of the technology on the borders of compliance and integration, as enterprises have started adopting the technology with different use cases.

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