Date posted :08-07-2020

Date updated:

What is a blockchain? Easy to understand explanations of the mechanism and issues

The blockchain is being considered by many companies, including virtual currencies, as having a room for introduction.

In the first place, blockchain technology was introduced into virtual currencies as a technology to ensure reliability.

Blockchain technology is expected to play a part in the decentralized society, and has the function of managing data and maintaining security.

Therefore, in this article, I will explain in detail how the block chain works, the types, issues, examples of usage of block chain.

What is a blockchain?

Blockchain refers to technology that handles transaction data in cryptocurrencies such as Bitcoin.

The blockchain handles each transaction (also called transaction data), and by connecting multiple transactions in blocks, it manages the data of important transactions.

The fundamental feature of blockchain is that data management is performed using a decentralized management system.

Blockchain data is stored depending of various computers used by users.

As a result, it is possible to avoid the centralization of authority as in the case of illegal data tampering or conventional centralized banks.

With the birth of Bitcoin, the representative of virtual currencies, blockchain technology is gaining attention.

Therefore, it is expected to be put to practical use in the field of fintech and data maintenance.

In the next chapter, I will explain in detail how the blockchain works.

Mechanism of blockchain

Blockchain is a decentralized system that can manage and store important data.

It is not a system that can be managed only by people with strong authority like the existing now, but it will explain in depth the mechanism of the blockchain managed by many people.

Block is encrypted using a hash function

Data is always recorded openly in the transaction process on the blockchain.

For example, when you want to make a transaction, the date and time, the remittance address, and the remittance amount are saved in blocks.

These data can be checked by anyone on the site that records blockchain.

However, for detailed contents in transaction data are designed to be encrypted using a hash function.

A hash function generates a fixed number of characters as an irregular string.

If a hash function is selected from the underlying transaction data and the same data cannot be extracted, different hash values will be generated.

In addition, the original data cannot be read from the already generated hash value by inverse calculation.

In the block data, you can see the encrypted transaction and the hash value of the transaction data that was just completed.

So, from the last transaction data, it will confirm whether the transaction is valid from the hash value and the 32-bit number generated by the miner.

Blocks are linked like a chain when the approval/disapproval decision is made here, and the transaction data is consistent.

Blockchain approves transactions based on precise rules and certain judgments.

Since transaction data is automatically stored according to certain rules rather than artificially, cost reduction is also realized.

It can issue new cryptocurrency

In order to ensure the integrity of transaction data, a combination of the encrypted hash function, the immediately preceding hash function, and the nonce is required.

So, who is helping this series of approvals? The answer is this person (miner) who performs the approval work called mining.

Miners use enormous computers to quickly check whether the transactions are not fraudulent.

The mechanism is that the first person that succeeds in authorizing transaction data will receive newly issued cryptocurrency.

Bitcoin, for example, is limited as it has only 21 million mined BTC. The number of cards issued is fixed in every fixed period, which contributes to the stability of the markets.

All transactions are open to the public

All transactions made with cryptocurrency are recorded on the blockchain.

It is called a distributed ledger, and you can check the number of transactions, the hash value, and the amount of traded cryptocurrency.

Since the hash value of the transaction data that is performed in real time is encrypted, you can check the transaction details while maintaining fairness.

Since there are many people's eyes, it is possible to prevent fraud before something happens.

You can see the transaction record from this page.

Participants can manage each other

Blockchain technology is the only mechanism for managing participants, and it is called a peer-to-peer management structure.

Until now, third parties such as banks intervened in the liquidity and transactions of funds.

However, with blockchain technology, you can check the reliability of information traded by multiple computers like a distributed trading ledger.

There is also the disadvantage that transactions are not executed in real time because approval processing is performed with multiple data blocks.

However, you can transfer and trade money to any country or region with robust security and low cost.

Types of block chains

I have explained the mechanism of blockchain up to this point. Now, check out the different types of blockchains.

Strictly speaking, there are public and private blockchain technologies.

About public blockchain

In traditional financial institutions, data management operations such as transactions were left only to people inside the organization and people with some management authority.

However, the public blockchain, in which anyone can participate in data management, has a decentralized structure.

Since unspecified number of people can participate in mining, liquidity tends to be high all the time.

About private blockchain

On the other hand, in the private blockchain, data is managed by the administrator.

The centralized private blockchain is a recommended system for organizations and companies with a common purpose.

The reason is that the data can be managed within the community so that more specialized
information data can be shared.

Typical services using blockchain

The IT industry has been showing significant growth in recent years. However, the issues in the IT industry that handles a large amount of information is the damage such as information leakage and hacking.

The blockchain mechanism, which is decentralized and whose data is protected by a special theory, is expected to be used in various fields.

Introduction case to the sharing economy "Arcade City"

Arcade City, a venture company from the United States, is a company that provides ride sharing services.

With this service, transactions between individuals can be made between drivers and passengers using blockchain.

Transactions are highly transparent (such as mutual evaluations and payments), and the price can be decided by the driver.

Q&A service "Wizball" by LINE

The blockchain developed by LINE is called "LINK Chain". In this service, "LINK Point" is issued as a reward when answering the question of the questioner.

This cryptocurrency can also be used as a well-known "LINE point" such as used for mobile payment.

It will be a convenient service as it can be used virtually at many stores in Japan.

Market and future forecasts by cryptocurrency "Augur"

Blockchain-based services have also been launched in the field of cryptocurrency.

Augur's service aims to be a platform for fair trading in markets that predict what will happen in the future.

In the past, betting and gambling have often been disadvantageous because of the presence of the banker that operates.

And so, the blockchain technology called smart contract introduced at Augur has enabled transparent and reliable transactions.

Challenges of blockchain

Blockchain is expected to manage valuable information and data in a distributed network from a centralized management system.

However, there are challenges in forming a social infrastructure based on blockchain technology in the future.

Can the problems of blockchain be solved?

51% risk of data loss due to attack

It is said that the strength of the blockchain is that it protects against unauthorized falsification and ensures that information can be managed accurately.

However, the strength of security also changes depending on the type of service that the blockchain is using.

As an example, in the field of cryptocurrencies, transactions are approved by miners using the POW (Proof of Work) system.

The POW system is a system where the person who approves the transaction first can receive the reward.

This POW stipulates that the computing power of a particular participant should not exceed 50%.

However, if a malicious miner calculates more than 50%, it becomes possible to cheat.

If a fraudulent act called this 51% attack is performed, not only data tampering but also all transactions may be lost.

The blockchain was originally intended to be managed by an unspecified number of people while monitoring each other.

Therefore, it is necessary to take measures to prevent attacks that can be made against vulnerable blockchain systems (currently, we are looking for a concrete solution).

Optimize regulations on blockchain

And although the blockchain technology may be used in every company's use cases, the current situation is that the parties do not have a deep understanding.

Blockchain technology has technologies that are useful in all industries such as finance, law and data management.

All industries tend to have a poor understanding of the concept of blockchain as there are already established transactions and business flows.

Therefore, it will be possible to establish a system to promote the spread by firmly determining the correct regulation of the blockchain among concerned parties such as regulatory authorities.

There is a limit of scalability

Blockchain has a fixed number of nodes that can participate in transactions. Therefore, when transactions are crowded, processing will be delayed.

In order to solve such technical issues, we have created a space in the number of blocks to be generated such as Segwit so that more transactions can be performed.

Expected applications for blockchain

There are many uses expected by blockchain. I will explain in detail about the technology that utilizes the advantages of blockchain.

An agreement by smart contract

There is a smart contract implemented in "Ethereum" which is one of the main altcoins.

The smart contract blockchain technology can improve contract efficiency and prevent fraud and tampering.

Therefore, it is possible to omit contracts when conducting transactions through third parties such as real estate and banks.

In addition, it does not require artificial costs as in the past, so contracts can be executed at low cost.

Realization of efficiency and cost reduction in overseas remittance

Starting with Bitcoin, cryptocurrencies can be traded 24 hours a day, 365 days a year. Even when sending money to someone, there is no time limit and it is possible to send money across borders.

We normally send money via financial institutions, so it will take time at the counter and takes high fees.

On the other hand, blockchain-based remittance enables direct communication between the sender and the recipient.

You can send money directly from cryptocurrencies such as Bitcoin, and Ripple's technology, which has high expectations in the remittance field, enables low-cost and quick remittance payments even for money transfer.

Realization of distributed management system

Finally, it was the blockchain-based distributed management system that created the construction of a drastic management system.

Since computers and servers are not unified, it is possible to prevent a complete system down.

Information is highly transparent because it is easily recovered and managed by multiple users.


This time, I gave a detailed explanation of the blockchain, which is said to cause a technological
paradigm shift.

Since the blockchain mechanism is managed fairly by the participants, it is easy to prevent unfair transactions and approvals.

Also, from a practical point of view, there are different types of block chains, so you can use them according to your application.

In recent years, an increasing number of companies are incorporating these blockchain technologies into new services based on these blockchain technologies and conventional business models.

Blockchain trends will continue to receive great attention in the future.

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