An Immutable Ledger
What is a ledger in blockchain? A blockchain is a distributed ledger, similar to a database, but rather than being controlled by a central authority (i.e., a firm like Google, small company, or individual) the ledger is dispersed across multiple computers, which can be located all over the world and run by anyone with an Internet connection.
To begin, let us consider what a Bitcoin is. From the original white paper, a Bitcoin is a chain of digital signatures. When an owner of a bitcoin wants to transact with said bitcoin, he or she signs the bitcoin with the previous transaction and the public key of the next owner and attaches it to the coin. Now the coin is owned by the second person, and they can repeat this process over and over again.
This action represents how a bitcoin was obtained and how it was spent. Naturally, a problem arises though. How does the new owner know for certain that the previous owner did not give this coin to someone else? After all, they could theoretically lie about the previous transaction and give you a coin that is owned by someone else, to prevent this, there is an immutable timestamped ledger that records all of the transactions. This way, the new owner can see all transactions that occurred with this bitcoin and be sure that the previous owner is not trying to trick them.
To scale this system, transactions are grouped together into ”blocks” and are ”chained”. This is where the term blockchain comes from, together to form a linked list of transactions. Then, when a new transaction occurs. The network can propagate this information to all the other nodes in the network who will then add this block to their current record. And then everyone has an updated version of the blockchain. This however raises a new question? How can I be sure that a new transaction I received is a legitimate transaction that everyone else also received and trusts. The solution is a Proof of Work algorithm.
Proof of Work
To maintain a single ledger that is undisputed in its veracity on a peer to peer basis, we use a system known as proof of work. To start, let us consider the immutable ledger described earlier. In order to add a new block to the ledger. Miners need to find a number that when hashed, produces another number with a certain number of leading zeros that is specified by the previous block. Miners can only attach this new block if they find this specific number. There is no better method to find this number than to randomly guess and check. Thus guaranteeing that the amount of computations that the miner has to do. Also known as work, exponential in the number of zeroes required.
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Once a miner finds the correct number. They can attach their block to the ledger and broadcast it to everyone else. All of the other miners will receive this new version of the ledger and begin working on the next block.
This allows the ledger to be immutable, once a network accepts a block. A bad actor would have to redo all of the computational work on that block. And all of the other blocks afterwards. And because there is no better method than guessing and checking. As a result, it is essentially impossible to alter the ledger. Lastly, unless you have more than 50% of the entire network’s compute power(also known as hashing power).
