Introduction
Blockchain is a trending buzzword nowadays, but understanding blockchain, what it is, and how it works is quite hard for most people. In layman’s terms, Blockchain is the new security architecture for the internet. It allows us to keep information secure by distributing information across the network, just like human intelligence is distributed worldwide. It distributes personal data rather than concentrating it in one place, creating an immutable record for documenting user behavior. The ability of attestation is one of the most important features Blockchain offers, along with privacy.
However, at the most basic level, Blockchain is a giant Merkle tree with a chain of blocks linked together using cryptography. Each block embeds the previous block’s hash, timestamp, and transaction data, eventually forming a chain of hash blocks.
This ties the block together, and the collision resistance of the hash function will make it computationally infeasible for an attacker to generate a fake version of a block that hashes to the value stored in the block after it.
Blockchain is a decentralized, distributed public ledger that maintains a continuously growing list of transaction data records with consistency and certainty. Furthermore, Blockchain is immutable. Once the block is written to the Blockchain, it cannot be altered, thus eradicating the opportunity to tamper with information.
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Understanding Blockchain: How Does it Work?
The following example will help you with understanding Blockchain process.
Two parties, X and Y, have decided to exchange a unit of value (digital currency or some other digital asset, such as a birth certificate). The following will be the sequence of steps they undertake:
1. Transaction:
To change the state of the Blockchain, a transaction must occur. They will initiate the transaction.
2. Block:
The transaction is packaged with other pending transactions in the transaction pool (or memory), creating a candidate block. The block is then sent to the network comprising of nodes, with each node containing a copy of the entire ledger.
3. Verification:
The participating nodes in the network evaluate the transactions and, through mathematical calculations, determine whether they are valid based on agreed-upon rules. When a consensus has been reached, typically among 51 percent of participating computers, the transaction is considered verified.
4. Hash:
Each verified transaction block is timestamped with a cryptographic fingerprint called a hash. Each block also embeds the previous block’s hash, thus maintaining a growing list of transactions secured from tampering and revision.
5. Execution:
The unit of value is moved from the account of party X to the account of party Y, thus changing the state of the Blockchain.
Benefits of Blockchain
1. Distributed:
All the nodes participating in the network have a full copy of the ledger, thus ensuring full transparency across the network.
2. Fault tolerance:
Blockchains are designed to keep functioning even if nodes fail. There is no single point of failure as no nodes are “mission-critical”.
3. Trustless:
The Blockchain is designed so that users can trust the ledger without trusting anyone else in the network.
4. Immutable:
5. Secure:
3 factors make Blockchain secure. First is its distributed ledger. There is no one point of failure. The second is a cryptographic fingerprint called a hash unique to each block. Not only are all transactions individually cryptographically secured, but Hashes also serve as the links in the Blockchain. As we discussed earlier, each block includes the previous block’s hash. So, for changing an entry in the ledger, you would have to calculate a new hash not just for the current block but for all subsequent blocks as well, and the last thing is the consensus protocol by which nodes add a block to the ledger.
6. Programmable:
Blockchain technology, such as Ethereum, is programmable. Ethereum project introduces this idea of triggering transactions automatically when certain pre-defined conditions are met using smart contracts, thus decoupling the contract layer from the Blockchain layer.
7. Timestamped:
Every transaction is time-stamped, thus keeping track of the creation time of the transaction, which is an indispensable tool in the business world.
8. Unanimous:
The consensus protocol makes sure that every new block that is added is agreed upon by all nodes in the network.
Read more: Understanding Blockchain And Its Impact on Our Society – Part 2.
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Blockchain is impacting our society in a variety of ways. Pick any industry, from automobiles to artificial intelligence to healthcare, and you will find Blockchain. I hope this blog has helped you understand Blockchain!
In the subsequent blog (Understanding Blockchain and its Impact on Society- part 2), we’ll talk about how Blockchain impacts our society by listing down use cases in different industries and how Blockchain is making its mark there. Stay tuned!
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