What is Blockchain Technology?
Many people confuse Blockchain with cryptocurrencies or, in particular, with Bitcoin. However, to clear this misconception, Blockchain is not a cryptocurrency. Blockchain is the technology behind cryptocurrency, and this is just one use-case of the technology. Blockchain makes products for almost every industry, just like any other software. But only smarter and more reliable.
Blockchain is a decentralized ledger, tracking digital assets on a Peer-to-Peer network. On this network, each node (computer/server) connects to one another in some way, and each node holds the same copy of the ledger.
Let’s break down this statement to its core essentials. A ledger is a record book, which holds details of every transaction that takes place on the network. Each machine contains a copy of this ledger, in such a way that it verifies each transaction. Think of it as a bank statement. For example, you and four other friends hold a copy of this same statement. When any of your friends make a transaction, the system ill check the last statement and verify if it is the same in all the other four. Only once this background check is completed, can a new transaction take place. After the transaction is completed, it will be updated in all five ledgers.
If anybody tries to manipulate their statement, it won’t match the rest of the ledgers. This is a sure-shot way of avoiding fraud. Now imagine this happening on thousands of machines, independently for every transaction. An attacker cannot manipulate so many devices simultaneously.
How do Block and Chain come into the picture, and how they are related?
In a typical bookcase, each page contains some data. Think of the book as Blockchain, every individual page as a single block, and the data on this page as a Blockchain transaction. All these pages are in a particular order and references to the previous page.
It is essential not to delete any pages because then it can change the meaning of the entire agreement. if in case any page has been removed or deleted, it is easily identifiable because every page is numbered. Removing one page will corrupt the entire ledger. For example, if you remove page 65 from a 100-page book, then it will get noticed when somebody tallies it. But three questions arise from here.
- What does this have to do with digital assets or currencies?
- What if the page is not deleted, and instead, the data on it has been tampered?
- Now, will we tally every block on each node for making a new transaction?
This is precisely what makes Blockchain so transparent and reliable because everything is recorded in thousands of places, and no one can tamper with it. A digital asset or currency is nothing but a number defined in a Blockchain carrying some value. It could be an apple, chair, or a book. It just has to be of value for the two parties involved in a transaction. For example, Bitcoin is only a number, stored in the ledger and is being tracked from day zero, but with its popularity, it has gained value.
For answering the other two questions, observe the image above. These are blocks in a hypothetical Blockchain. The initial block is called the genesis block. This block may contain some initial balance or could be zero. If the Blockchain is not minting (creating) new tokens or balance in every single block, then there has to be some balance in the genesis block; otherwise, there will be no way to introduce the balance.
As you can see, in Genesis block, the nonce is a string-based number, and sign n-1 is the signature of the previous block. Since this is the genesis block, the signature of the last block is zero. Now, let’s suppose A has 10 tokens or coins, B has 10, C has 15, D has 5, and E has 20 tokens. Three transactions are being initialized in this block. When these transactions get executed, the new block should reflect the updated balance of each account. Sign ‘n’ holds the signature of the Current block. This signature is generated using every word which is written on this block. Now, even if a single letter is tampered in this block, the entire signature will change.
This discrepancy can be easily identified because the other blocks will be holding the untampered signature. SHA256 is a cryptic algorithm used to create the digest or signature. It is a one-way logic; you cannot decrypt the signature to give the actual content.
When a new block is added, this signature will be shown in the sign n-1 parameter of the block. And the balances will be updated. Once again, the hash of this block will be created and stored in the signature parameter. And this value will be carried forward in the next block and so on. The nonce in the second block are being generated by the miners, using a mining algorithm. Although it differs from Blockchain to Blockchain, Nonce should be created in such a way that the value of the signature of that block is lesser than that of the previous block. The signatures should be in a decreasing order.
To find such a signature, the miner has to guess a nonce and calculate its digest and check if this digest has lesser value than the previous one or not. If not, then this process keeps on repeating. Miners have to try millions and trillions of times before coming to the right number. It is called the proof of work. A lot of time and computational power is required to mine such numbers. Reaching to such a number proves that the miner has done some work, and for his work, he is rewarded with some coins or tokens. These nonce are further used by other people on the Blockchain to execute the transaction.
This way, the number of blocks can go up to a hundred thousand or even millions of blocks, depending on the technology and resources. In Bitcoin Blockchain, the average time to add a new block is 10 minutes. In Ethereum Blockchain, it is 15 seconds. Remember, since there will be a hundred thousand or more blocks, a hacker can’t tamper data. Let’s suppOse a hacker does want to change the data in a block, and there are 10O0 blocks after it. When he will tamper the data and announce it, the digest won’t match with the rest of the ledgers. And tampering with all 1000 blocks will be very expensive.
It is not necessary that a node connected to a Blockchain has to be a miner as well. In a public Blockchain, it is intended that mining a new block is computationally challenging. This is done to ensure that it stays secure. So the miners have to compete with each other to make sure they get the reward. The more complex the mining algorithm is, the more secure the Blockchain will be.
Benefits of Using Blockchain Technology
For many individuals, Blockchain is not just a technology but more than that. It has the potential to disrupt traditional technologies, which help in creating a fairer world, spanning finance, governance, supply chain management, and much more. In this guide, we will examine some of the individual qualities that Blockchain offers, detailing why they are needed now more than ever.
Blockchain functions as a decentralized, peer-to-peer system, and thus its system never crashes. Typically, if you have a company website, you run it through a centralized server, with perhaps redundant databases running behind it. If the server crashes, your website goes down, and there is nothing you can do. But with Blockchain technology, everything runs on a peer-to-peer network so that even if one peer goes down, the other peers are still present, and the Blockchain continues to function correctly.
Another feature is the high security. This is achieved through cryptographic algorithms that are running behind the Blockchain. You only need to trust the cryptographic algorithms, the ECC algorithm; the SHA algorithm; or the RIPEMD-160 algorithm. These are publicly defined algorithms and are used by all the major companies. So you need to put your trust in these cryptographic algorithms. All the transactions on the Blockchain are cryptographically secured to maintain their integrity; every transaction made on the Blockchain has some cryptographic algorithms running behind it.
As you already know, for security, each block is linked to the other. And all the transactions confirmed on the Blockchain have another cryptographic algorithm running behind them as well. Hence when each transaction is created from, and on top of previous transactions, it is difficult for people to tamper with the data. Anyone trying to tamper the data needs to change all the past and future transactions too.
The next benefit of Blockchain is verifiability and auditability. How does Blockchain provide you with verifiability and auditability?
Any record of a transaction on a Blockchain is verifiable by anyone. Like if you’re using a public Blockchain like Bitcoin or Ethereum, all the transactions that happen on these Blockchains can be verified by anyone. To verify transactions, you can use a Bitcoin explorer or an Ethereum explorer, etc. These explorers are web apps that are built upon Blockchains themselves, inwhere you can go and see how the transactions have happened.
For example, you can see how, Thus, everything is verifiable, and everything is transparent within a public Blockchain. These records are openly accessible so that there are different ways to secure your record.
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