Bitcoin For Dummies. Peter Kent

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      Okay, so the hacker could rehash Block A’s data and then save the “corrected” hash. But wait, now the next block (Block B) would not match because Block B is carrying Block A’s original hash, and they just changed that. So now, the hacker needs to change the Block A hash stored in Block B.

But now Block B’s hash doesn’t match Block B’s data, because that hash was created from a combination of Block B’s transaction data and Block A’s hash!

      So, Block B would have to be re-hashed, and the hash updated. But wait! That means Block B’s hash stored in Block C now doesn’t match!…

      See where we’re going? This would ripple through the entire blockchain. The entire blockchain would now be broken above the “hacked” block, by modifying just one single character in that block. In order to fix the problem, the entire blockchain would have to be recalculated. From the hacked block onwards, it would need to be “re-mined,” as they say in the Bitcoin world. What may look like a simple hack and database edit has now turned into a major computational headache that cannot be easily completed.

      So, this hashing function, combined with the fact that thousands of other nodes must be in sync with identical copies of the blockchain, makes the blockchain virtually immutable; it simply can’t be hacked.

      Nobody can change it or destroy it. Hackers can’t get into the peer-to-peer node network and create transactions in order to steal crypto, governments can’t close it down (China, for example, could attempt to shut down Bitcoin within its borders, as they have tried recently, but the blockchain would continue to exist in many other countries, and even in China for people managing to get through the Chinese “Great Firewall”), a terrorist group can’t destroy it, one nation can’t attack another and destroy its blockchain, and so on. Because so many copies of the Bitcoin blockchain prevail in so many countries, and as long as enough people want to continue working with the blockchain, it’s practically immutable and indestructible.

Finding Out How the Ledger Functions

So what do we have so far? You found out that Bitcoin is stored as a history of Bitcoin transactions in a ledger and that ledger is stored in a distributed, “immutable” blockchain, with blocks of transactions chained together, spread across scores of countries and tens of thousands of nodes. Now it’s time to look into the ledger and see how it works. The first thing to know about is the address.

      Your address: Where your money is stored in the ledger

      Every Bitcoin or fraction of a Bitcoin is “stored” in the ledger associated with a particular “address.” An address is a unique string of letters and numbers. Here’s an example of a real one I just grabbed from the Bitcoin blockchain using the blockchain explorer at www.blockchain.com:

       1L7hHWfJL1dd7ZhQFgRv8ke1PTKAHoc9Tq

      Trillions of different address combinations are possible, so this address is fundamentally unique. All your Bitcoin is associated with one or more addresses. There’s nothing in the blockchain identifying you specifically, which is why Bitcoin is called pseudonymous it’s partly anonymous. Nothing in the blockchain says who owns what. However, the blockchain is also open and public. Anyone can look into the blockchain and see, within the ledger, how Bitcoin is being transferred from one address to another. So if you know who owns a particular address (as Bitcoin exchanges do, for instance; you’ll find out more about those in Chapter 3), you can see what that person did with their Bitcoin. That’s why it’s not completely anonymous.

      Now, where do addresses come from? They come from wallets, which are software programs that generate addresses mathematically from a public key, which in turn was generated from a private key. In fact, wallets contain at least one private key, one associated public key, and one associated blockchain address. Which brings us to another subject you’re going to have to discover (just a little) about.

      What’s the crypto in cryptocurrency?

      The crypto in cryptocurrency refers to cryptography. So, what exactly is cryptography?

According to The Oxford English online dictionary, cryptography is “the art of writing or solving codes.” Wikipedia’s explanation is more complicated and more digital: “The practice and study of techniques for secure communication…cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages.”

      The history of cryptography goes back at least 4,000 years. People have always needed to send secret messages now and then, and that’s what cryptography is all about.

      Today’s cryptography, with the help of computers, is far more complicated than the ancient ciphers of the classical world, and it’s used more extensively. In fact, cryptography is an integral part of the Internet; without it, the Internet just wouldn’t work in the way we need it to work.

Almost every time you use your web browser, you’re employing cryptography. Remember the little lock icon, shown in Figure 2-2, in your browser’s Location bar?

      FIGURE 2-2: Your browser’s lock icon means that data submitted back to the web server will be encrypted with cryptography.

The lock icon means the page is secured. When you send information from your browser to the web server (and receive information back), that information is encrypted — scrambled — so that if it’s intercepted on the hundreds or thousands of miles of Internet transmission between the two, it can’t be read. When your credit card number is transmitted to an ecommerce site, for example, it’s scrambled by your browser, sent to the web server, and then unscrambled by the receiving server.

Ah, so, the blockchain is encrypted, right? Well, no. Cryptocurrency uses cryptography, but not to scramble the data in the blockchain. The Bitcoin blockchain is plain text which is open, public, and auditable. Figure 2-3 shows you an example of a blockchain explorer designed for Bitcoin. Using a blockchain explorer, anyone can investigate the blockchain and see every transaction that has occurred since the genesis block (the first block of Bitcoin created).

      FIGURE 2-3: An example of a blockchain explorer tool, found at https://live.blockcypher.com/btc/.

      ENCRYPTED BLOCKCHAINS

      It is possible to build encrypted blockchains and encrypt data within a blockchain. For example, it is possible to create encrypted blockchains that obscure the transaction data, such as the Zcash blockchain, and some blockchains used for purposes other than cryptocurrencies may be encrypted. In general, though, cryptocurrency blockchains are not encrypted — the Bitcoin blockchain is not — so anyone can read the transactions stored within them.

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