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Blockchain Series Part 1

There is currently an unprecedented amount of attention (or hype!) and investment (or gamble?) directed at cryptocurrencies, such as Bitcoin. Inevitably, many people think of blockchain as the technology that powers Bitcoin. While this was its original purpose, blockchain is capable of so much more. Some claim that blockchain can lead us to Web 3.0, the third generation of the evolution of web technologies, where you will be the owner of your content; some think that blockchain can reshape our current financial systems and change the global power structures. Although we share the enthusiasm for its potential, we worry about the misconceptions and hype. The history of technological innovation tells us that when a blockchain revolution happens, the policies, procedures, and protocols of many sectors change drastically. There would be a huge problem if we rush headlong into blockchain innovation and dive into its products without truly understanding what they are.

What is Blockchain?

Imagine a group of four friends: A, B, C, and D, who exchange money frequently, such as paying for their share of the dinner bill. It is inconvenient to exchange cash all the time, so they decided to create a communal ledger which records payments that everyone needs to make in the future. The communal ledger is public and accessible to everyone where anyone can add new records, such as C needs to pay D RM100. At the end of every month, the group of friends check through the ledger and tally everything up. However, there are a few problems. Since everyone is allowed to add a new line, what prevents, for example, A adds a new line stating B pays A RM200, without that even happening? Who do you trust to keep the records, and who controls the rules of adding new lines?

Now, consider a business situation, where a company owns and has full control of a server farm with thousands of computers storing all of the clients’ information under a roof. What happens if there is a power outage in the area? What if there is any natural disaster around the area? What if the data is deleted by accident? In any case, the data is destroyed or corrupted.

Blockchain, which was first proposed as a concept in 1991, is capable of resolving the issues of centralised data storage and information management. The purpose of blockchain is to allow digital information to be stored and distributed, but unable to be edited. Despite having a huge interest in recent years, blockchain was based on decades of research on computer networks, cryptography, and game theory.

In its simplest form, a blockchain is a chain of blocks, with each block containing a certain number of validated digital information in a given timespan. Each block is made up of three elements: data, a unique timestamp known as the hash of the block, and the hash of the prior block. In this context, a hash is a unique identification assigned to each block in a blockchain, and would alter if the data in the block or the order of the block in the chain is modified. This guarantees the integrity of the blockchain starting from the very first block, known as the Genesis Block, which contains no (or arbitrary) hash of the previous block.

Blockchain is a new structure for storing data. A database usually structures its data into tables with a hierarchical file system, or utilises a relational model for specific datasets. A blockchain, on the other hand, is a continuous growing list of data records. The system does not overwrite the old data if there are any changes, but registers the change as a new line. This ensures the data is protected from deletion, tampering, and revision. As all changes are permanently written to the blockchain in chronological order, any data modification can be traced back to their origin in a non-destructive way. With blockchain, every agreement and process will have a digital record that could be identified, validated, stored, and shared easily.

Blockchain is a decentralised, distributed ledger. Although the concept of a ledger has been around for some time, blockchain takes advantage of it by having a single source of truth and a distributed nature. Information is not stored by a central authority, but distributed and shared over a large network of computers. This is a new type of trusted peer-to-peer interaction. Every node of the network holds a copy of the blockchain, and every chain across the network will be updated when a new block is added. Furthermore, all nodes in the network participate in the cross-verification and authorisation of new transactions. As a consequence, blockchain allows us to confidently trust the output of the system without trusting any nodes within it.

Blockchain represents a new social structure. It implements the concept of a majoritarian voting system across the network to verify and validate the information in the chain by allowing every user to act as a stakeholder with equal power. Blockchain ensures the validity of your contracts and certifications do not depend on the decision or existence of a single entity or organisation. As the record of contracts, certifications and transactions are among the defining structures in our legal, economic, and political systems, central authorities and intermediaries might no longer be necessary. With blockchain technology, we can expect our contracts to be stored digitally and independently, and permanently protected from deletion, tampering, and revision.

How does it work?

A blockchain collects sets of information in groups, known as blocks. When the storage capacity of a block is filled, it is closed and added to the previously closed block. Any new information following the newly added block will be collected into a new block, which will then be added to the queue as well once filled. Every block containing the hash of the previous block inherently forms blocks of data chained cryptographically in chronological order. If a new change is made to the information recorded in a particular block, the block is not rewritten. Instead, the change and the relevant details are stored in a new block, which will then be added to the end of the chain.

What makes blockchain unique is its decentralised nature. Instead of relying on a central authority to manage the chain, blockchain utilises a peer-to-peer (P2P) network, where immutable and encrypted copies of information are stored in every node on the network. Every node of the network has a copy of the blockchain on its electronic devices, and every chain across the network will be updated when a new block is added. If one of the copies is lost, there are still many other copies, and therefore the data is not lost and the system stays operative.

Before a new block is added to the chain, a few things have to happen. First, a block containing a cryptographic puzzle will be sent to the entire blockchain P2P network. Every node (computer known as ‘miner’) on the network will solve the puzzle via computational power simultaneously, hence ‘putting work’, and the first node that solves the puzzle will broadcast the solution to all the other nodes. When the solution is verified by the majority of the network (over 50%), the new block will be added to the chain. The process of solving the cryptographic puzzle to create a new block is known as ‘mining’, while having the solution to be validated by the network is known as ‘proof-of-work’. While it is difficult to find a solution to the puzzle, it is much easier to verify the solution, making the proof-of-work consensus an essential component of blockchain.

Back to the group of friends. Now, A is trying to make a Bitcoin transaction to B. When A initiates the transaction to B, a block consisting of the transaction is sent throughout the blockchain network. Then, the miners start mining the block by solving puzzles, and the moment a miner has mined the block, the solution is shared with the entire network. When the solution is validated by the majority of the network, the block containing the transaction is added to the blockchain. Finally, B receives the Bitcoin transaction.

Let us imagine if someone, maybe a hacker, changes the data in one of the blocks. If the data in any of the blocks is modified, the hash of the block will change. Now, this hash is inconsistent with the previous hash of the next block. For this reason, the modification will be invalid and rejected by the system. Changing the data of any block requires regenerating all successor blocks and redoing the work, in other words, to solve all the cryptographic computational puzzles again, which is practically impossible. This makes a blockchain an irreversible timeline of data which is immutable and tamper-resistant.

While this gives a general overview of how blockchain works in a public network, there is room for modifications on the aspect of privacy and efficiency to fit different purposes. More advanced technologies such as pluggable consensus, smart contracts and longest chain rule are also implemented to resolve more specific issues.

How is it different from what we are using now?

As mentioned earlier, most data we have currently are stored in the form of a centralised database, governed by a database administrator (DBA). Due to its centralised nature, the DBA’s usually have some degree of control over the database that they govern. Let’s take a profound middleman as an example - the bank. In the banking system, the clients’ personal data collected is essentially kept by the banks’ DBA. The DBA’s responsibility is to ensure the security of the client’s personal data, as agreed by the client in the Bank’s Privacy Statement. All information given to the bank should not be shared with a third party unless consent is obtained from the client. With blockchain, clients can complete online transactions without going through banks or third party-applications and without having to share any personal data.

A profound difference can also be found in the security level. In the current banking system, people can choose to avoid the breaching of personal data by practising solid internet security measures, such as using secured passwords and two-factor authentication. But even so, the data security level will need to depend on the bank server’s security; whether the firewall is strong enough to deter hackers and phishing. Although blockchains are also not immune to cyberattacks and fraud, the records on blockchains are protected by strong and complex computer algorithms through cryptography. When a person makes a transaction on a blockchain, they are given their own private keys associated with the transaction. Hence, if a record is altered, the private keys will become invalid. The peer network will know right away that something has happened to the data. This system helps to identify any possible security violation at an early stage, preventing any further damage.

Some of its applications?

Since its inception, blockchains have been adopted in various fields and industries, with diverse applications. Despite waves of resistance, blockchain technologies have been tested aggressively in the past few years, particularly in the finance, healthcare, and real estate industries. To learn more about its application, we will take a look at some examples of how blockchains are employed in each industry.

First is the finance industry. Well, there is no doubt that finance is the main hub for blockchain to bloom, especially in the financial technology (Fintech) realm. Be it for international payments, equity transactions, or auditing, blockchain’s capability to reduce the number of intermediaries successfully gains traction from the key industry leaders as they look at how this technology could innovate the industry. Just take a look at how profound cryptocurrencies such as Bitcoin have expanded. With as little as 10 minutes of processing time for each transaction, in a market that opens 24/7, many people started to delve into the cryptocurrency world to either trade or exchange funds through cryptocurrency wallets.

Despite its recognition in the finance sector, the universality of blockchain has also made it possible to be integrated into countless other industries. Healthcare is definitely one of them. Other than eliminating the threats of data manipulation in health records through decentralised data protection, it is also possible to leverage blockchain to eradicate counterfeit medications by creating a central database to trace all of the medicines. Blockchain networks are also now tested to create a system where patient data can be exchanged directly between hospitals. There is high credence that the network will help to improve the performance, security, and transparency of data sharing within the health care system.

Last but not least, it is also important to note the increasing reliance on blockchain in the real estate industry. Blockchain technology offers a new means for buyers and sellers to connect with one another without the presence of the traditional property agent. Blockchain can also assume functions such as sale agreements and legal documentation, subsequently eliminating intermediaries such as brokers and banks in the process.


By now you should have a clear view of what exactly is blockchain, its system, and some of its various applications across industries. While you are contemplating whether this blockchain phenomenon is actually a blessed innovation or a disastrous invention, you might not want to miss our next article in the series as we dive deeper into the pros and cons of blockchain technology. Our upcoming articles will review blockchain technology in a wider and deeper aspect.

Written By:

Yoo Jie Sing and Muhammad Zabir Bin Azreen Redzal

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