The Anatomy of a Block in a Blockchain

Blockchain & E-Transactions Law

In a previous post in this series, we provided an overview of blockchain technology and its benefits across industries. As a follow-up, below is an explanation of the technology in each block in a blockchain and how this technology functions to protect the integrity of the data on a blockchain.

Each block in a blockchain contains three key components. First, the block contains the stored data. For example, the blocks used in Bitcoin contain data regarding Bitcoin transactions, including the identification of the payor's electronic wallet, the payee's electronic wallet and the amount of the transfer. Second, each block contains a hash, a code which acts like a unique fingerprint for each block and is based on the data in the block. Third, each block contains a reference to the hash of the previous block to which it was connected. The references to the prior hashes are the links, or chains, that connect the blocks to each other. Each new block in the chain is confirmed by the consensus of computers on the ledger before a transaction is finalized and added to the chain.

The reference hash protects against alterations of the block. If a computer on the ledger alters the data in an already-created block, then the block's hash also changes. As such, the altered block's new hash will not match the reference hash in the subsequent block. To use an example, Block 50 and Block 51 are chronological blocks in a one hundred block ledger. Block 50 has a hash of "xyz" and Block 51 has a hash of "a1a" and a reference hash of "xyz." If a participant on the blockchain alters the data in Block 50, it will receive a new hash "abc." However, because Block 51's reference hash still identifies the old hash of Block 50, "xyz," Block 51's reference hash is now incongruent with Block 50's hash and thus signals that the chain has been altered.

One of the key benefits of blockchain technology is the trustworthiness of the data stored on a blockchain. Such trustworthiness derives from the application of hashes used to link and verify the individual blocks of data. As a result, look for more companies across industries to use blockchain technology to protect the security and accuracy of their data.

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