Blockchain

What is a blockchain?

A blockchain is a shared record of transactions that is copied across many computers instead of being kept by one company. Each computer, called a node, holds the same list. New entries are added in groups called blocks, and once a block is accepted it is very hard to change. That is why a blockchain is often called a tamper-evident ledger.

How blocks link together

Every block contains its transactions, a timestamp and the hash of the block before it. A hash is a short fingerprint of data: change even one character and the fingerprint changes completely. So if someone edits an old block, its hash changes, the next block no longer matches, and every node can see the chain is broken. To agree on which new block comes next, the network uses a consensus method, such as proof of work (computers compete to solve a puzzle) or proof of stake (validators lock up coins as a guarantee of good behaviour).

What it is used for

• Digital currencies such as Bitcoin, where no bank is needed to confirm a payment.
• Smart contracts: small programs stored on a blockchain that run automatically when conditions are met, for example releasing a payment when goods arrive.
• Supply-chain tracking, so companies can follow goods from factory to shop.
• Digital certificates and identity records that can be checked without calling the issuer.

The main security risks

A blockchain protects its records well, but the people and programs around it are still the weak points.

• Stolen private keys. Whoever holds the private key controls the funds. Phishing, fake wallet apps and malware all target keys, and stolen funds are usually impossible to recover.
• Smart contract bugs. Code on a blockchain is public and hard to change, so a single bug can be found and exploited by anyone.
• Scams. Fake investment schemes, "guaranteed returns" and impersonation of support staff are far more common than attacks on the blockchain itself.
• 51% attacks. On small networks, a group controlling most of the computing power or stake can rewrite recent history.
• Privacy. Most public blockchains are pseudonymous, not anonymous. Every transaction is visible forever and can often be linked back to a person.

Where to start: work through the notes below in order. Begin with how blockchains and consensus work, then move on to wallets, keys and smart contract security.