Blockchain Technology is the future and the future is Blockchain.
I have spent the past two years lightly learning the theoretical aspects of Blockchain Technology. Meanwhile, I recently started learning how to write smart contracts on the Ethereum Blockchain using the Solidity.
So, sit back and relax while I explain what I have learned so far.
Also, I will try to explain in an ELI5 (Explain it like I’m a 5-year-old) manner so you will be able to understand faster and better.
Before I go on, I will like to explain some Jargons you are likely to hear in this piece and in the Blockchain world in general.
Jargons In Blockchain Technology
This is simply a container that houses transaction data. They store this data according to their sizes.
A Hash, which is also called a hash code or hash value, is a 64-bit character that represents a block or transaction after encryption.
In the real world, a Ledger is a collection of account entries consisting of credits and debits. But, in the Blockchain, similarly, it is a distributed online database that contains the transactions happening on the Blockchain in a secure manner(I will explain more later).
A transaction is simply the activities that happen on the Blockchain like sending of BTC’s in terms of the Bitcoin blockchain.
A consensus is a general agreement between nodes participating in the Blockchain Network.
In this context, this means: Shared
Encryption, to a lame man, is the act of turning meaningful information into rubbish. But, in this field, it is simply converting elements like data, blocks, etc into a random fixed-length string of characters whereby the length depends on the hashing algorithm.
To understand what this is, you have to understand what a network is.
Therefore, a network is a connection between two or more computers either physically or remotely, so that they could share files intelligently.
So, in contrast to the Client-Server network model which is a centralized kind of network where a client creates a connection to a server that stores all the information in need, a Peer-to-Peer network model is a type of network where every individual participating in the network called a node has equal privileges.
In this kind of network, they are interconnected together and are the servers themselves.
They are responsible for storing the data in their storage devices thereby making the network decentralized.
Cryptography is the study and practice of ways in which information can securely transmit in the presence of third parties called Adversaries.
Also, it is worthy to note that Encryption is a technique of Cryptography.
What is Blockchain Technology?
I guess this was the question that led you to this article. You’re definitely in the right place.
According to Vitalik Buterin, the co-founder and inventor of Ethereum which the second-largest cryptocurrency in the world:
A Blockchain is a magic computer that anyone can upload programs to self-execute, where the current and all previous states of every program is always publicly visible, and which carries a very strong crytoeconomically secured guarantee that programs running on the chain will continue to execute in exactly the way that the Blockchain protocol specifies
I know this sounds so cumbersome, but I will make you understand.
A Blockchain is a distributed ledger that is maintained by nodes in a Peer-to-Peer network.
Through consensus, they make decisions that ensure the sustainability of the Blockchain.
Components of a Blockchain
According to Wikipedia, a Blockchain can also be defined as a growing list of records which are called blocks, that are linked using cryptography.
Following this definition, a block has some key components.
These components are:
Timestamping is a way of keeping track of transactions on the Blockchain by securely saving the time it occurred.
By nature, the timestamp of a block unalterable. Not even the person involved in the transaction could change it.
This is simply the activity being performed.
They are a series of processes these transactions follow in order to be added to the Blockchain:
A transaction must first take place.
Using a mall for illustration, when you pick the product and take it the counter the transaction has occurred.
Secondly, the transaction must be verified.
The nodes in the network check if this transaction is correct.
They check your transaction cost, digital signature, the mall’s digital signature, and so on.
After the transaction must have been verified as accurate, it is added to a block that contains other verified transactions.
Then, the block is added to the Blockchain.
Lastly, the block is hashed.
This is a process whereby using complex mathematical algorithms, the block is encrypted into a cryptographic hash value.
This is a random fixed-length string of characters created on adding the transaction to the Blockchain.
The Hash serves as a unique identifier to a particular block.
Also, a block contains the Hash of the previous block. Therefore, this makes the Blockchain secure (we’ll get to that).
Types Of Blockchain
They are three types of Blockchain, which are:
These are the kinds of Blockchain where there are no somewhat restrictions.
Anyone with an internet connection could perform a transaction on the Blockchain as well as partake in the maintenance of the network.
Bitcoin, Ethereum, and most other cryptocurrencies are Pubic in nature.
This is also called a Permissioned Blockchain where access is restricted to a particular set of individuals.
Also, maintenance is restricted.
It is mostly used in companies. Therefore, it is somewhat Centralized in nature.
Also called Hybrid.
This is a situation whereby the features of centralization and decentralization are combined.
The usage of this Blockchain depends on how many levels of implementations of centralization and decentralization.
Have you learned anything so far? I hope so.
Let’s move on.
Is Bitcoin a Blockchain?
This is a common misconception among individuals who are new to Blockchain Technology.
As simple as it may sound, the answer is NO.
In 1991, Stuart Haber and W. Scott Stornetta described how data could be stored using a cryptographically secured chain of blocks.
They wanted to create a system where documents could not be altered.
In 2008, an anonymous person( or maybe a group of people) with the name Satoshi Nakamoto proposed the first Blockchain in a white paper titled “ a new electronic cash that’s fully peer-to-peer, with no trusted third party”
Later in 2009, Nakamoto used the Blockchain as a core part of his Bitcoin, the first decentralized digital currency in the world. Using it as a pubic database for all transactions on the network.
So, Bitcoin is a cryptocurrency and not a Blockchain. Rather, Bitcoin is built on the Blockchain.
I hope you are cleared now?
Behind the Scenes
Now, let’s look at how the Blockchain works.
According to William Mougayar, a venture advisor, marketer, and blockchain specialist:
The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once. That’s how banks maintain money transfers; they briefly lock access (or decrease the balance) while they make a transfer, then the update the other side, then reopen access (or update again). With Google Docs (or Google Sheets), both parties have access to the same document at the same time and the single version of that document. The distributed part comes into play when sharing involves a number of people.
Imagine the number of legal documents that should be used that way. Instead of passing them to each other, losing track of versions, and not being in sync with the other, why can’t all business documents become shared instead of transferred back and forth? So many types of legal contracts would be ideal for that kind of workflow. You don’t need a blockchain to share documents analogy is a powerful one
For better understanding, I will be using Bitcoin which is the world the largest cryptocurrency, as an illustration.
When Mr. A decides to send X bitcoins to Mr. B using the provided pubic address, the following processes occur:
- A Miner(we’ll get to that) checks the database to know if he has up to the amount he wants to send. If he doesn’t have it, the transaction is disallowed. Else, it moves to step 2.
- Then, money is deducted from Mr. A’s account and added to Mr. B’s account, thereby solving the double-spending problem.
- Then, the transaction is added to a block as well as other verified transactions.
- Lastly, it is added to the Blockchain which in turn becomes permanent.
Note that these processes are more complex than explained. And, all these occur in about 10 minutes.
Public Address and Private Key
The best analogy for a public address is an account number.
But, this time, encrypted to keep the identity of participants anonymous, thereby ensure the security of user information.
For lightweight users who only send and receive bitcoins to access the Bitcoin blockchain, they use a software called wallets; by rendering a graphical user interface that removes the complexities involved in the network.
What is Mining
To start with, they are three types of participants in the blockchain, namely: Light nodes, Full nodes, and Miners.
Light nodes are the aforementioned group of people above who interact with the Blockchain using a wallet. Thereby, avoiding the complexities involved in the network.
While Full nodes are the set of people who store the database on their machines. Therefore, they are involved in accepting or declining transactions.
Lastly, Miners are like workers on the network. They race to validate transactions using very high processor-powered machines to solve complex mathematical algorithms to show that they truly validated a transaction. Then, they broadcast the results to the full nodes and other miners on the network.
Then, if 51% of nodes in the network approves the transaction as valid, it is successfully added to the blockchain. This process is called the Proof-of-work consensus.
Core Attributes of the Blockchain
These are the reasons why Blockchain Technology is unique.
There are three core reasons why the Blockchain is unique:
From inception, centralized networks have been the conventional model.
But, this network has loopholes that have been exploited over the years, and would still be exploited in times to come.
Peer-to-peer networks are not perfect in nature. Rather, they are competent for high security.
Take, for instance, the banking systems; if a hacker successfully gains access to the central server, then he has the power to alter any information without the need for any form of restrictions.
But, in the Blockchain, for a hacker to successfully alter the information or add invalid data to the database, you need to have 51% of the nodes in the network on your side.
With over a million nodes around the world, this is still not impossible, rather it will be meaningless to do that because of the outrageous cost.
In the field of Blockchain, this simply means once data is added, it cannot be changed.
This is the first of its kind.
The structure of the blockchain makes it impossible for data to be changed by a node once it is added to the database.
Also, note that even the node involved in the transaction is not excluded.
This is achieved through cryptographic hashing.
If a block in the database is altered automatically its hash value changes. And, the hashes of every block connected to it also changes because they are all chained together.
Therefore, it becomes invalid because it has no proof of work.
The public ledger is both anonymous and transparent. Weird, right?
Take, for instance, the Bitcoin public ledger. If you go to blockchain explorer you would see something like this:
Thereby, keeping the sender anonymous but keeping the transaction public.
Imagine organizations have public addresses whereby employees could check money is beings spent. Wouldn’t it be great?
Applications of Blockchain Technology
Apart from cryptocurrency, Blockchain could be applied in various areas of our lives.
The Blockchain would be the best option in terms of file storage.
As we all know, everyone wants his/her files to be save and secure, and Blockchain supports this.
Just like Bit-torrent, the Blockchain would make file storage and file transfer better because of its decentralization. Also, it less prone to hacks because the database is shared.
This will also be a competent replacement for the current Client-Server network used on the web because the web is currently overloaded.
Blockchain technology will improve this allowing nodes to store these contents on their storage devices.
The fact that the Blockchain is transparent makes it best for Governance.
The Blockchain would help build democracy.
Imagine the Government had a public address that shows all transactions carried out by the Government. Wouldn’t it be great?
Boardroom is an app that enables decision-making to happen on the Blockchain. This makes transparency a core part of the organization.
Blockchain as a distributed ledger technology enables the creation of simple contracts that will be automatically executed in an intelligent manner when the given conditions are apart.
Conventionally, Crowdfunding is done on websites being managed by an entity that is prone to fraud. But, imagine a system that takes decisions on its own without depending on an entity.
Ethereum is an open-source blockchain project that was created with the primary aim of achieving this.
FollowMyVote is a Virginia-based company that has attempted in creating a secure voting system using blockchain. This company creates a voting system that ensures that a vote is recorded once for the specific candidate they want and permanently recorded on the blockchain.
Blockchain technology is a perfect innovation for the voting system because of its transparency and immutability.
I saved the best for the last.
According to SNL Financial and CNN Money Report, JP Morgan Chase, Bank of America, and Wells Fargo alone earned more than 6 billion from ATM and overdraft fees in 2015.
Imagine you could make transactions without paying outrageous fees, and the need for a middle man.
Also, as funny as it may sound, bankers be would financial advisers, rather than gatekeepers of our funds.
It is worthy to note that a huge percentage of the explanations on this post is referring to the Bitcoin Blockchain. The Ethereum Blockchain has a few tweaks to that of Bitcoin.
Blockchain technology holds great innovations in times to come. It is the future.
From the Banking System to Voting System down to Supply Chain.
Also, Blockchain will be a core component of IoT (Internet of Things) because of its unique way of storing data.
I hope I have been able to pass knowledge. Please let me know in the comments section.
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