A Tale of Alliance: Blockchain Technology
What is a Blockchain?
As internet changed the world by decentralizing the information, likewise the Blockchain has changed the digital payment system.
In simple words, a Blockchain is a chain of blocks that contains valuable information, for example, a money transaction.
It can be considered as a decentralized ledger, which simply means that a ledger is spread across the network among all peers in the network, and each peer holds a copy of the complete ledger. A chain of block, it is a growing list of records, that blocks are linked using cryptography.
Who paved the way for blockchains?
uDigiCash (1989)
uTo make untraceable, anonymous transactions
uE-Gold (1996)
uDigital currency system
uB-Money and Bit-Gold (1998)
uDecentralized currency system
uRipple Pay (2004)
uExchange digital IOU (debt) contracts
uReusable Proofs of Work (RPOW) (2004)
uPrototype for issuing token for computing intensive work
uBitcoin (2009)
Importance of Blockchain
What problems can it solve?
In the banking system. When there is an international transaction, the money is transferred from one bank to another. Those banks are called corresponding banks and they have to verify every transaction they receive. Sometimes, the recipient does not receive the money and you wondering where did it go. You call the bank and they have to check with the other corresponding banks in the transaction flow.
The problem here is that each bank has a copy of their own ledger and they have to do some manual entries So eventually, it ends up being very costly and very slow.
- Another problem that it solves is double spending. Normally when a transaction is made, there is a unique digital token to used to render the transaction.
- Double spending is a potential flaw in the digital cash scheme in which the same digital token is used more than once. The digital token can be duplicated and falsified.
- User does not have to trust the central authority, they trust the blockchain. The double spending problem is solved through consensus of the nodes which I will talk in while.
Key Features
Decentralization
The basic difference between a centralized and decentralized network is that centralized system has a core/central authority
For example, if we talk about PayPal system, it is centralized system and PayPal itself is responsible for managing and verifying all the transactions. PayPal is the trusted authority. They are the ones who keep track of the money and they are the ones who tell you how much balance you have.
There are thousands of computers trying to update the ledger, whose ledger do we trust. How to distinguish between legitimate and illegitimate transactions, so its cumbersome and takes time.
So a decentralized system is a peer to peer network. Any node in the network is allowed to verify the transactions. There is no central authority that owns the blockchain.
Transparency
- All the transactions are transparent and any body can see how much money is sent.
- Although it is transparent but it protects the sender’s and the receiver’s identity.
Immutability
Immutability, once something has been entered into the blockchain, it cannot be tampered with
Can you imagine how valuable this will be for financial institutes?
If a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible.
Cryptographically Secured
- Sha256 Encryption
- Avalanche Effect
Even if you make a small change in your input, the changes that will be reflected in the hash will be huge
How does the blockchain work?
A user let say Alice sends a request for a transaction. A new block will be created against this transaction. The block is broadcasted to all the nodes in the network. So all the nodes in the network validate the newly added block that contains the transaction information. When the block is verified by the nodes and consensus is made then it is added to the chain. Therefore, the transaction gets verified and is executed successfully.
And now lets take a deep dive in the validation and mining process.
Since it is peer to peer network, everyone is allowed to join the network. When a new node joins the network, the node gets the full copy of the Blockchain
The node used this received Blockchain to verify and blocks and everything is in order.
When a new block is added, each node then verifies the block that it has not been tampered with. After verification, all the nodes add this new block to the block chain. All the nodes in this network create consensus. They agree upon what blocks are valid and which are not. Blocks that are tampered with will be rejected by the other nodes in the network.
To successfully tamper with the Blockchain, you need to tamper with the all the blocks in the chain. A block cannot be changed without redoing the proof of work. Redo the proof of work for each block and take control of more than 50% of the peer to peer network. It seems to be almost impossible but still hackable.
Have You Learned Something New Today?
I can’t wait to hear your thoughts , suggestions or questions in the comment section below. If you find this piece of content helpful. Do share it with like-minded peoples in your circle.
Zahin Azher Rashid
I am Zahin, a professional freelancer, software developer, product manager and I am on a mission to help freelancers learn high-paying skills and earn good money. Enable the struggling freelancers to become high-paid freelancers in their respected domains and niches.
Anjali
Blockchain technology
Hamza hussain
Nice sir
Thahir janan
A Tale of Alliance: Blockchain Technology