Blockchain is a structure in which every data to be processed is encrypted and stored in a structure called a block at certain time intervals, in which a summary of the previous block is found in each new block and all this data is stored in more than one data storage point.
History and Early Examples:
The concept of blockchain today came into our lives for the first time in 1991 when Stuart Haber and W. Scott Stornetta time-stamped important documents to prevent changes in the dates of the documents. The main purpose was to create an unchangeable document without the need for an external approval such as a notary public.
In order to improve the efficiency of this system, a more reliable encryption system, Merkle Trees, was created in 1997, in which codes are processed into each other to generate the next codes. Merkle Trees is an encryption system developed to verify the data in the system faster. It stores the data of the previous transaction at each stage and requires much less memory since it stores all processes in the last stage called root.
The system, which was powered by Merkle Trees, remained functional until Satoshi Nakamoto introduced Bitcoin technology in 2008.
An Overview of Concepts:
Transactions: In blockchain, each input is called a transaction. Each transaction in the blockchain is a data transfer. For example, each transaction realized in the Bitcoin blockchain represents an unspent Bitcoin balance. In a blockchain working for a supply chain, it can keep a product’s journey step-by-step.
Encryption: Data on blockchain is encrypted as it is created. For example, each transaction and wallet address is encrypted with the SHA-256 cryptographic method, which was created by NASA. The term “hash” is used to define each password.
Block: In blockchain, transactions which are performed at the end of the time period determined according to the architectural structure are combined and encrypted, and the summary of the latest encryption, which is called “a block header”, is included in a new block. The chain in the term “blockchain” comes from it.
Nodes: Transactions on blockchain are transferred to nodes by nodes and take their place permanently on blockchain after being encrypted. By downloading historical data on blockchain, nodes check whether the transactions, which are sent by miners, comply with the blockchain’s protocol. For example, when a Bitcoin transfer is made, the balances of the sending wallets are checked in history and accepted. Nodes are constantly in communication with each other, and they keep the same data—this might vary depending on the storage technologies. In this way, when a new data is sent to the blockchain, all nodes check the same data, and the data is permanently saved if the majority is achieved.
Miners: Miners are the bodies who encrypt all transactions that occur in the period between the last block and the formation of the new one in blockchains that work with the Proof of Work method in order to earn block rewards. To earn rewards, miners try to find the result in the fastest way in the encryption method of the blockchain and send it to the nodes. Miners are rewarded for the first transaction accepted by the nodes.
Difficulty Level: It is the concept which determines the difficulty of the password for the encrypted results that the miners try to generate. For example, there is a certain amount of 0s (zeros) at the beginning of the password for all the passwords that must be found in the Bitcoin blockchain. The higher the number of zeros, the more difficult the generation of the encrypted message and the greater the competition among miners. In addition, blocks are always produced at approximately the same time, since the duration of the password generation also takes longer because of the difficulty level.
Records: Blockchain records are any content information on which the related blockchain structure is built. Depending on the design, this information can be values such as money transfer, fixture entry, customer records. These records are money transfer information for virtual currencies. Transfers made from one registered user in the system to another one are kept with these records. New transfer requests are also queued and saved and replaced during the next transaction.
Blocks: Records are combined and processed at regular intervals and written into blocks. The criteria such as how many records will be in the blocks and after which transactions the records will form a block depend on the design of the blockchain. Generally, cryptographic hash algorithms and digital signatures are used during the creation of a block. All transactions taking place on the blockchain are encrypted and recorded in the same way on all computers in the system. All points where blockchain records are distributed constantly communicate with each other, confirming that the system is not corrupted. These records form blocks by processing each other at regular time intervals.