Blockchain Tutorial For Beginners

Blockchain Tutorial from Coding compiler. Blockchain has been described as one of the most significant technological advances in modern history, potentially comparable to the Internet, which led to what it was called “Internet 3.0”. Despite the incredible potential of blockchain technology in changing the world as we know it, there is still no complete understanding of what it is, how this technology works and why it is so revolutionary.

Blockchain Basics Tutorial

The difficulty of understanding the blockchain technology arises in part from the fact that knowledge and understanding of certain terms and what technologies are used in it is required. Probably, there is still not enough information on the Internet, besides, people do not always want to delve into technical terminology. This tutorial is created to change this state of affairs. Let’s start learning Blockchain.

What is a Blockchain?

The Blockchain tutorial begins with an explanation of What is a Blockchain? With a broad and understandable explanation of the blockchain technology, as well as its historical value. Knowing aspects is especially important for understanding how blockchains and cryptocurrencies can change the financial industry.

How does the Blockchain work?

Here there is a deeper immersion in the mechanisms of the technologies on which the blockchain is built. In this section of the tutorial, the reader can already begin to deal with the individual parts that make up the blockchain and how they work together. As before, the focus is on ensuring that these technical aspects are explained as simply as possible.

The benefit of using the blockchain is a more detailed explanation of the values ​​that are embedded in the blockchain technology, which will significantly affect business development, its optimization and increased profits. For many people, blockchain is more than technology, it represents the potential for creating a new, more equitable system of transactions and interactions. This section of the tutorial examines how the introduction of the blockchain can positively affect the usual business.

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Use cases – here are the cases of using the blockchain, both now and in the future, and how it can improve the world in which we live, because it can happen much earlier than we expect. The real use cases of blockchain technology will be demonstrated now; it is shown how much it exceeds the systems that we currently have. It remains only a matter of time when it will be implemented in all areas of activity throughout the world.

The most widespread use of technology was found in completely new types of business, investment and innovation, such as cryptocurrency, ICO and mining.

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What is Blockchain technology?

Blockchain is a continuous sequential chain of blocks that contain information that creates networks — often referred to as “Internet 3.0.” It is the way in which this information is recorded that gives the blockchain its innovative potential.

Blockchain technology is not a company and is not an application, but is a completely new way of documenting data on the Internet. This technology can be used to develop blockchain applications such as social networks, instant messengers, games, exchanges, exchangers, storage platforms, voting systems, forecast markets, online stores and much more. In this sense, it is similar to the Internet, so some people call it “Internet 3.0”.

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Blockchain and it’s functionality

Information recorded in a blockchain can take any form, be it a transfer of money, possession / possession, a transaction, someone’s identity, an agreement between two parties or even how much electricity the light bulb used. However, this requires confirmation from several devices, such as computers, on the network. After an agreement, otherwise known as consensus , is reached between these storage devices on the blockchain, they cannot be challenged, deleted or altered without the knowledge and permission of those who made the recording, as well as the entire community.

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Instead of storing information in one central point, as is the case with traditional recording methods, several copies of the same data are stored in different places and on different devices on the network, such as computers or printers. Such a network is called a peer-to-peer network ( P2P ). This means that even if one storage point is damaged or lost, several copies remain safe in other places. Similarly, if one piece of information changes without the consent of the legal owners, there are many other storage locations on the network where the information remains unchanged, which makes the false entry incorrect.

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Why is it called “Blockchain”?

It’s named as the blockchain because of the principle of how it works and how the technology stores the data, namely that the information is packed into blocks that communicate with each other to form a chain with other blocks of similar information.

It is the fact of linking blocks into a chain that makes the information stored in the blockchain reliable. Once data is written to a block, it cannot be changed without replacing every block that was added after it, making it impossible to make changes without being caught.

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Typically, each block contains data, such as a transaction, such as 1 token (coin) sent from Alena to Vasya, as well as time stamps when this information was recorded. It will also include a digital signature associated with the account that made the record and the unique identifying link in the form of a hash (this is like a digital fingerprint) to the previous block in the chain. It is this link that makes it impossible to change any information or block a block between two existing blocks. To do this, you will also need to edit all subsequent blocks. As a result, with each new block, the principle of immutability and security of the entire blockchain is enhanced, since this means that in order to enter false data or make a change to the record, all subsequent blocks will have to be edited.

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When all the blocks are combined into a single chain, a repository of information is created that cannot be challenged, changed or declared invalid.

Each block contains data that it records, such as a transaction, a timestamp, the identity of the account recording the information, as well as a hash, associating the block with the previous one in the chain.

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Who created Blockchain?

The first mention of the blockchain technology appeared in a document or whitepaper , published in 2008 by the mysterious founder or founders of Bitcoin, known as Satoshi Nakamoto. Assumptions about the true identity of this undoubtedly ingenious coder continue to this day, some initially argued that Nakamoto is a man living in Japan, and he was born on April 5, 1975.

However, because of his decision to write down a document about Bitcoin in English and his language proficiency, the blockchain community believes that Satoshi is of non-Japanese origin, but of European or North American origin. Information about the blockchain and the Bitcoin network is transparent and publicly available, anyone can watch the Bitcoin Satoshi Nakamoto. It is known that he currently owns about one million bitcoins.

There are several theories as to why Satoshi Nakamoto chose to remain anonymous, but the general consensus is that he is a modest developer who simply does not want attention to himself, which would undoubtedly come with the creation of such a destructive technology.

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Also worth knowing that Satoshi Nakamoto did not build all the nuances of the blockchain from scratch. In fact, none of the technologies used in the blockchain is new, they have been around for many years. However, when used in combination with each other, they create a revolutionary proposal, which is blockchain technology.

Blockchain is a record of information

In simple terms, blockchain is a record of information that allows you to make transactions with someone (whether it is a service or a purchase of goods) without having to trust or rely on any intermediary, such as banks, notaries, eBay and PayPal. Therefore, if you want to sell your laptop, you can do it right through the blockchain, without needing anyone else. Thanks to this, you save on commissions for transactions, or on the services of intermediaries.

But the use of blockchain technology is not limited to buying and selling goods / services; any type of information can be recorded in it.

The data that is recorded is copied onto many different devices that are connected to each other to form a network. Whenever new information is added, all devices update the records immediately. Thus, even if one device loses some information, the data will remain safe and recorded on other devices in completely different places.

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This is different from how information is being recorded today, because usually all our information is stored on one big computer (server / data center), and not on many different places. The identity of all the data in the blockchain is hidden behind special addresses (for example, postal addresses, but in the form of completely random numbers and letters), they are created using cryptography . You can see what an address does if you know the numbers and letters that make up a specific address. Although anyone can have as many addresses as he wants. This helps to make the blockchain private (in some private way).

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How does Blockchain works?

When information is added, it is packed into blocks, which are packets of information, connected in a chain of similar blocks of information. From this comes the name of the technology.

The blockchain is special because all the added information creates a special code that everyone can see and check to make sure that the information is as it should be. Each time additional information is added to the chain that the code changes to show that this fact has occurred. So, if someone tries to change the data that is already recorded in the blockchain, it will spoil this code, and everyone will know about it. Because of this, all information about the blockchain is always correct.

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The task that the blockchain solves is that all the various devices on the network agree to the addition of any information, not allowing anyone to deceive the system and add everything that hit or what desires to attackers (or simply by third parties). This is done with the help of complex computer programs that reward people who have devices that work hard to record the necessary information in the blockchain. Rewards come in tokens called cryptocurrencies , such as Bitcoin or Ethereum tokens . In turn, they are built on the blockchain and can be bought and sold for money, for example, US dollars or euros or rubles.

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Despite the growing popularity of cryptocurrency , many people are still struggling to implement the blockchain technology and actually use it, with the exception of buying and selling cryptocurrency. This is due to the fact that creating a blockchain application may require the study of a new programming language; this may seem complicated and time consuming. Therefore, some companies and startups are trying to offer new tools / services for developing such applications, releasing the SDK, Toolkits.

Blockchain is a combination of different technologies

Blockchain is a complex concept consisting of a combination of different technologies, each of which is a fundamental component that turns it into a revolutionary proposal. In this section, we will look at these aspects individually, in detail and why they are so important.

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We will look at how the blockchain works, and in simple words, we will explain that every aspect of the technology contributes to a bigger picture. The technical aspects that we analyze are as follows:

  • Ad hoc network
  • Cryptography
  • Digital signatures
  • Nodes (nodes)
  • Hashing
  • Consensus Protocols
  • Byzantine problem
  • Proof of stake
  • Delegated Proof of Stake (DPoS)
  • Proof of Work & Mining

Some of these technologies are already ingrained in everyday life, for example, if you use Whatsapp, then you send messages encrypted using cryptography every day. Some of them are less widely used, such as P2P networks, whereas consensus protocols are inherent only in the blockchain.

Every aspect of technology plays a key role in not only performing its functions at a local level in a safe and reliable way, but also maintaining and promoting the functioning of the network.

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What is a peer-to-peer (P2P) network?

The Peer to Peer network (abbreviated P2P) is a very important part in the work of the blockchain technology; it plays an important role in creating a powerful and reliable network. Here we will look at what P2P is and why it has such significant advantages over centralized systems with which we are familiar today.

In a P2P network, the user simultaneously uses the network and ensures its existence, although the provision of resources is completely voluntary. Each peer node (node) ( “peer” which is a network computer system) is considered equal and commonly referred to as a node (node). A peer makes part of computing resources, such as disk storage, processor power, or network bandwidth, directly accessible to other participants without the need for any central coordination by servers or permanent hosts.

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Despite the fact that all nodes are equal, they can assume different roles within the blockchain ecosystem scheme, for example, a miner or a “full node”. In the case of a complete node, the entire blockchain is copied to one device, and the device is connected to the network. This means that the information stored in the blockchain cannot be lost or destroyed, in turn, to do this, you need to destroy every full node in the network. Therefore, as long as there is a single node with a copy of the blockchain, all entries remain intact, and it is possible to rebuild this network.

Peer-to-peer networks are completely different from traditional client-server models that are common today, since there is no central storage point, such as a server. Instead, information is constantly recorded and circulated between all members of the network. Another advantage and difference from the centralized client-server model, when network efficiency slows down when a larger number of users join it, is the ability of a  P2P network to actually improve its capacity with more devices or nodes.

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Device peer-to-peer network

There are a number of devices on the network, and everyone can connect to any other. Each of these devices can send requests to other devices to provide any resources within this network and thus act as a client. As a server, each device must be able to process requests from other devices on the network, send what was requested. Each device must also perform some auxiliary and administrative functions (for example, keep a list of other well-known “neighbor” devices and keep it up-to-date).

Any member of this network does not guarantee their presence on a permanent basis. It can appear and disappear at any time. But when a certain critical network size is reached, there comes such a moment that at the same time there are many servers on the network with the same functions.

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This method of transmitting information is a huge improvement, because the data is not stored in one centralized location, which makes it much less vulnerable to hacking, exploitation or loss.

The absence of a central storage center means that there is no need for dominant authority and therefore neither side can control and use the network to promote its own and only goal. Instead, the user becomes the true owner of their personal data, if they reliably protect them. This is a bold step away from today’s centralized systems, where the social network becomes the owner of all the data that the user himself downloads or the company that provides payment systems, deciding when you can access your own funds, leaving the right to freeze your money, when deemed necessary.

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The P2P architecture was originally introduced into the Napster file-sharing application in 1999, where files, such as music or film, were stored on several computers. A simple example would be a user who wants to download an album. Each peer in the network sends a part of the album to the loader, for example, one song. At the same time, the downloader will also ship files that it receives or has already received to other parties that download the same album. It was illegal, as it allowed distributing pirated copies of copyrighted content, but it was very popular and, undoubtedly, effective.

The emergence of the P2P network and the role it plays in blockchain technology can be viewed as a new communication system. The blockchain no longer needs to be trusted by third parties, since users can deal directly with each other through a secure and distributed and decentralized network.

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Despite the fact that everyone’s participation in the network is open for viewing, all information and participants ’identities are completely hidden in the blockchain through very sophisticated, modern cryptography.

Cryptography in Blockchain

Many people use cryptography every day, without even thinking that many popular messaging applications use encryption. It is also one of the main aspects of the blockchain technology. In this segment of the Blockchain Academy The Blockchain Journal, we will provide a simple but detailed explanation of both symmetric and asymmetric cryptography.

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Encryption is a method of concealment and disclosure, otherwise known as encrypting and decrypting information using complex mathematics. This means that information can only be viewed by intended recipients and no one else. The method involves obtaining unencrypted data, such as a piece of text, and encrypting it using a mathematical algorithm known as a cipher . All this creates an encrypted text, its information is completely useless and meaningless until it is decrypted. This encryption method is known as symmetric key encryption.

An early example of cryptography was Caesar’s cipher, which was used by Julius Caesar to protect Roman military secrets. Each letter in the message was replaced by a letter with 3 spaces left in the alphabet, this was the key with which the message was encrypted. Caesar’s generals knew that in order to decipher the letters, they needed only to shift them to the right by three symbols, while the transmitted information itself remained safe, even if it was intercepted by Caesar’s enemies. Modern cryptography works on the same principle, albeit with a much greater level of complexity.

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The code base for most ciphers is open source projects, which means that their code can be verified by anyone. The most widely used cipher in the world is called AES, it is free for any user, and its code is open for viewing by any person. As a result, it was studied in some detail and no vulnerabilities have been discovered so far. This cipher is also used by the NSA, the United States National Security Intelligence Agency, as a tool for encrypting information. Thus, the information recorded in the blockchain can be considered safe, as one of the most sensitive secrets in the world.

In the blockchain, cryptography is mainly used for two purposes: 1. Securing the identity of the sender of transactions. 2. The impossibility of faking past records.

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Blockchain technology uses cryptography as a means of protecting the identity of users, ensuring the security of transactions and the protection of all information and its storage. Therefore, anyone who uses the blockchain can be completely sure that as soon as something is written to the blockchain, this is done legally and in such a way that security is preserved.

Despite the fact that it is based on a similar structure, the type of cryptography used in the blockchain, namely public-key cryptography, is much better suited for functions related to technology than a symmetric-key cryptography.

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What is public key cryptography?

Public key cryptography, also known as asymmetric cryptography, is an improvement on standard cryptography with a symmetric key, because it allows you to transfer information using a public key that can be shared with anyone.

Instead of using a single key for encryption and decryption, as is the case with encryption with a symmetric key, separate keys (public key and private key) are used.

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The combination of the public key and the private key of  users encrypts the information, while the recipient’s private key and the sender’s public key decrypt it. It is not possible to determine which private key is based on the public key. In this way, a user can send his public key to anyone without worrying about having access to his private key. The sender can encrypt the files, in full confidence that they will be decrypted only by the intended party.

In addition, using a public key cryptography creates a digital signature to ensure the integrity of the displayed data. This is done by combining the user’s private key with the data he wants to sign using a mathematical algorithm.

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Since the actual data itself is part of a digital signature, the network does not recognize it as valid if any part of it is tampered with. Editing even the slightest piece of data changes the form of the entire signature, making it false and outdated. Thanks to this, the blockchain technology is able to ensure that any data written to it is true, accurate and unchanged. Digital signatures are what gives the data recorded in the blockchain unchanged.

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What is a digital signature?

In a sense, digital signatures do what their names suggest: they provide authentication and authentication in the same way as signatures, only in digital form. In this segment, we will discuss how they work, as well as how multisigs can be used to add an extra level of security.

Digital signatures are one of the main factors for ensuring the security and integrity of data that is recorded in the blockchain. They are a standard part of most blockchain protocols, mainly used to protect transactions and transaction blocks , transfer confidential information, distribute software, manage contracts and any other cases where it is important to detect and prevent any external interference. Digital signatures use asymmetric cryptography , which means that information can be shared with anyone using a public key .

In many parts of the world, digital signatures are as valid as regular signatures. Examples of countries or organizations that recognize them are: European Union, United Nations, United States of America, Switzerland, Brazil, Mexico, India, Indonesia, Turkey, and Saudi Arabia.

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Digital signatures provide three key benefits of storing and transferring information in the blockchain. First of all, they guarantee integrity. Theoretically encrypted data that is transmitted can be changed imperceptibly by a hacker. However, if this happens, the signature will change to become incorrect. Therefore, data with a digital signature is not only safe from viewing, but also makes it possible to detect whether they have been tampered with, thereby strengthening their immutability.

Digital signatures not only protect the data, but also the identity of the sender. Possession of a digital signature is always associated with a specific user, so you can be sure that they are communicating with who they intend to do.

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For example, even the most experienced hacker cannot fake someone else’s digital signature in order to convince someone to send money, it’s just  beyond mathematical possibilities. Therefore, digital signatures guarantee not only transmitted data, but also the identity of the parties interconnected. Those. if Katya wants to communicate only with Nastya – a digital signature will make sure that she communicates with Nastya and only with her.

When using blockchain technology, the user has a public and private key, both of which appear as strings of random numbers and letters. A public key, sometimes called a public address, can be compared to an email address and a private password key. It is very important never to share a private key with anyone.

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It is equally important that the private key is recorded and stored in a safe and secure place. Ideally, on a piece of paper or a hardware wallet, since both are almost impossible to crack. Storing private keys in text documents or notes is not recommended, as they can be cracked relatively easily. In the blockchain there is no option “I forgot my private key”. If the private key is lost, then everything that is encrypted with the key will be lost.

Finally, the fact that private keys are tied to individual users gives digital signatures the quality of non-denial. This means that if something is digitally signed by the User, it may be legally binding and fully connected with the signatory. As mentioned earlier, this largely depends on the fact that there is no doubt that the private key that signed the data has not been compromised, used or noticed by anyone other than its owner.

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Digital signatures are unique to the signer and are created using three algorithms:

  • A key generation algorithm that provides private and public keys.
  • A signature algorithm that combines the data and the private key to create a signature.
  • An algorithm that checks signatures and determines whether a message is authentic or not based on the message, public key, and signature.

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The key features of these algorithms are:

  • To make it absolutely impossible to work with a private key based on the public key or the data that it has encrypted.
  • Securing the authenticity of the signature based on the message and the private key is verified using the public key.

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Multisig

A multisignature, multisignature, sometimes abbreviated to multisig, is a digital signature scheme requiring you to  approve a deal with more than one signer. A joint signature is always smaller than a collection of individual digital signatures.

The concept of a system of multi-signatures was by no means created specifically for cryptocurrency, but in fact has existed for nearly a thousand years. The monks on Mount Athos protected their crypts with several keys, and several keys were required to unlock the crypt. This meant that no monk could access any precious relics without the knowledge of at least one other monk.

Multisig is used by many cryptocurrencies, including Bitcoin and Ethereum, as a means of enhancing security, as well as sharing the ability to make decisions between more than one side. This transaction function makes the system much safer, both from hackers and someone who has access to a key phrase.

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Can one person use multisig?

Yes, it is also known that people create multi-signatures for themselves in order to protect their account from hacking. With multisig, a user can theoretically have two separate private keys stored in two different places. Both keys are required to complete any transaction, adding an extra level of security. Therefore, in order to gain access to your funds, someone will need to get both keys in order to do this, which makes the process of fraud or theft more complicated and even impossible if both keys are properly protected.

For example, with a multi-signature, you can create a 2-of-3 escrow service, which means that two of the three parties must approve this for approval of a transaction. A great example of where this can be useful is a savings account for a child, where both the child and at least one parent must agree on how money is spent. It also reserves the right to choose any important decision made solely by the parents, if they both agree.

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Multi-signature can be created through countless combinations (3-of-3 transactions, 2-of-5 escrow, etc.) and is also suitable for small transactions, and are used by large companies. An example of this is the 5-of-9 system on the board of directors of a large company. To confirm any major transaction, most commissioners must agree to it. Or, for example, the formal delivery of funds by the recipient, subject to certain objective or subjective conditions.

Digital signatures are a key component of data protection in the blockchain, while nodes are the very foundations on which the network is built.

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What is a node?

A node is a device in a blockchain network, nodes, in fact, are the basis of technology that allows it to function and survive. These nodes are distributed throughout the network and perform various tasks. In this section of the Blockchain Academy The Blockchain Journal, we briefly consider the quality of the node in the blockchain network.

A node can be any active electronic device, including a computer, telephone, or even a printer, if it is connected to the Internet and has an IP address. The role of the node is to support the network in order to distribute and store copies of the blockchain and, in some cases, process transactions. Nodes are often located in the structure of trees known as binary trees. Each cryptocurrency has its own nodes, maintaining transaction records of this particular token.

Nodes are separate parts of a larger data structure that is a blockchain. Since the site owners willingly provide their computing resources for storing and verifying transactions, they have the opportunity to collect transaction fees and receive remuneration in the base cryptocurrency (tokens) for this. This is known as mining or forging .

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Processing these transactions may require large computational and  processing capacities, which means that the capacity of an average computer is insufficient. As a rule, professional miners invest in extremely powerful computing devices known as CPUs (central processing units) or GPUs (graphics processors) to keep up with the demand for computing power they need to verify transactions, and usually receive the reward that comes with this process.

The power required for several mining nodes is in fact so great that the cost of electricity also becomes a serious factor. It is for this reason that some of the largest and most profitable mining “farms” are located in places where electricity is cheaper, such as China or Venezuela.

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A node can be either a communication end point or a communication distribution point with other nodes. Each node in the network is considered equal, but some of them have different roles in how they support the network. For example, not all nodes will store a complete copy of the blockchain or transaction confirmation.

Full assembly (full node) loads a complete copy blockchain and checks any new transaction received based protocol consensus , used this particular cryptocurrency or utility  token. All nodes use the same consensus protocol to remain compatible with each other. These are the nodes in the network that confirm and verify transactions by placing them in blocks . Nodes always come to their own conclusion about whether the transaction is valid and whether it should be added to the block to other transactions, regardless of how other nodes act.

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Types of nodes

  1. The root node  is the highest node in a binary tree.
  2. Parent node – a node that has other nodes coming from it.
  3. A child node is a node that extends from another node.
  4. A leaf node is a node without descendants, a leaf node.
  5. Single-level nodes (sibling node) – nodes connected to the same parent node.
  6. Tree – the structure of these nodes, starting with the root node.
  7. Forest – a collection of tree nodes.
  8. Degree – the number of descendants of the node.
  9. Edge – connection between nodes.

What is hashing?

The reliability and integrity of the blockchain is based on the fact that there are no chances for any fraudulent actions or transactions, such as double costs. The cornerstone of technology in general and a key component in maintaining this reliability is hashing.

Hashing is the process of converting an input array of arbitrary length into a (output) bit string of fixed length. For example, a hash function can take a string with any number of characters (one letter or a whole literary work), and at the output get a string with a strictly defined number of characters (digest).

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Hash functions are available in almost any programming language. For example, they are used to implement hash tables and sets (HashMap / HashSet in Java, dict and set in Python, Map, Set and objects in JavaScript, and so on). A separate category of hash functions is cryptographic hash functions. They are subject to significantly more stringent requirements than to the functions commonly used in hash tables. Therefore, they are used in more “serious” cases, for example for storing passwords. Cryptographic hash functions are developed and thoroughly tested by researchers around the world.

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A good hash function provides collision protection (it is impossible to get two identical hashes with different initial data) and has a so-called avalanche effect, when the slightest change in input data significantly converts the output value. The avalanche effect in the SHA-256 hash function is as follows:

 >>> hash_hex (' B lockchain') 
'625da44e4eaf58d61cf048d168aa6 ... etc.'
>>> hash_hex (' b lockchain')
'ef7797e13d3a75526946a3bcf00da  ... etc. '
>>> hash_hex (' Bl 0 ckchain ')
' 511429398e2213603f4e5dd3fff1f9  ... etc. '

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Data Protection with Hashing

Hashing dramatically increases data security. Anyone trying to decrypt data by looking at the hash will not be able to determine the length of the encrypted information based on the hash. A cryptographic hash function should have several important qualities that will be considered useful, these include:

  • The inability to create the same hash value for different input data:   This is important, because if it were not so, it would not be possible to track the authenticity of the input data.
  • The same message will always produce the same hash value:   The importance of this is similar to the previous item.
  • Fast hash generation for any message: Otherwise, the system would not be efficient or provide value.
  • Impossibility to define input data based on hash values: This is one of the main aspects and qualities of hashing and data protection.
  • Even the slightest change in input completely changes the hash:   This is also a security issue. If only minor changes changed only the hash, it would be much easier to figure out what data was in the input. The better and harder the hashing algorithm, the greater the impact of changes in input data on the output (see the example above).

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Hashing protects the data, ensuring that they are not tampered with before the intended recipient sees it. For example, if you downloaded a file containing confidential information, you can run it using a hashing algorithm, calculate the hash of this data and compare it with what the one who sent the data showed you. If the hashes do not match, you can be sure that the file was modified before it was received.

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Blockchain Hashing

Hashes in blockchains guarantee the “irreversibility” of the entire transaction chain. The fact is that each new transaction block refers to the hash of the previous block in the registry. The hash of the block itself depends on all transactions in the block, but instead of sequentially passing the transaction to the hash functions, they are collected into one hash value using a binary tree with hashes (Merkle tree). Thus, hashes are used as a replacement for pointers in ordinary data structures: linked lists and binary trees.

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Through the use of hashes, the general state of the blockchain — all transactions ever performed and their sequence — can be expressed in one single number: the hash of the newest block. Therefore, the property of the immutability of the hash of one block guarantees the immutability of the entire blockchain.

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As already mentioned, the slightest change in any part of the input data leads to a huge change in the output data; this is the irrefutable security of the blockchain technology. Changing any entry that previously occurred on the blockchain will change all hashes, making them false and obsolete. This becomes impossible when the transparent nature of the blockchain is taken into account, as these changes must be made visible to the entire network.

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The first blockchain block, known as the genesis block , contains transactions that, when combined and verified, produce a unique hash. This hash and all new transactions that are processed are then used as input to create a completely new hash, which is used in the next block of the chain. This means that each block refers to its previous block through its hash, forming a chain back to the genesis block, hence the name blockchain. In this way, transactions can be added safely while the nodes in the network are in consensus on what the hash should be.

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