As the name “Blockchain” already suggests, the blockchain consists of a long chain of blocks, that were designed in a way, that once they are created, they are very hard to change again.
So let’s look at a single block and its properties.
A block consists of specific data, a hash, and the hash of the previous block.
Let’s break down each individual component.
The data varies, of course, between different blockchain applications, but for the sake of giving you an example, we are going to focus on the data, that the Bitcoin blockchain stores.
Bitcoin’s blockchain stores data, such as the sender, the receiver, and the number of Bitcoins of any transaction. This data is all stored in different blocks.
The second component each block has is an individual hash. A hash is like a fingerprint, that is very unique and different in each block. That means, that if you only change a small component of the block, the hash would be completely different. That way a hash makes a block very secure because it prevents anybody from tampering with any block.
The last component of each block hash is the hash of the previous block. This is the part, that makes all the individual blocks connect together to create a chain, thus forming the blockchain.
This is, what makes it nearly impossible to change the data of any block. Because if you do so, the hash of that block will get completely different, which leads to the next block having an invalid previous hash, which makes it’s hash different, and so on…
There you see, that if you change one block, all the blocks after that block will become invalid. This is, what makes blockchain technology so secure.
Cool, you might think right now, but how exactly do you control the pace at which new blocks are created. Because otherwise, anyone can create blocks at ridiculously fast, which wouldn’t be very good.
So how do you deal with this stuff?
You need to implement a way, to slow down the creation of new blocks. Bitcoin, for example, uses the Proof-of-work algorithm to slow down the creation of new blocks. In Bitcoin’s case, every 10 minutes a new block is created.
Now the final way, blockchain is secured, is by being distributed. What makes blockchain technology especially secure, is, that it uses a peer-to-peer network. That means, that no central computer controls or runs the blockchain, but lots of different users run it, and everybody is allowed to join.
Whenever somebody chooses to join the network, he receives a full copy of the blockchain (all blocks created so far) and can also ensure, that everything runs smoothly on the blockchain.
So, what happens when a new block is created?
That new block is sent to everybody on the network, and everybody verifies, that the new block is legit. If everybody checks, that the new block is completely legit, it is added by everybody on the network to the blockchain.
In other words, they all create a consensus.
Now that you know, how blockchain technology works, it is time to see torque trading systems, and how it can help you with blockchain and bitcoin.