In this two-part blog series, we will be discussing in detail what Blockchain is, how it works, its benefits, and its impact on our society.
What is Blockchain?
Blockchain is a trending buzzword nowadays, but for most people, it is quite hard to understand what Blockchain is and how exactly it works! In layman’s term, Blockchain is the new security architecture for the internet. It allows to keep information secure by distributing information across the network, just like human intelligence is distributed across the world. It distributes personal data rather than concentrating it in one place, and it creates an immutable record that allows for documenting user behavior. The ability of attestation is one of the most important features that 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 hash of the previous block, along with a 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 for maintaining 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 eradicates the opportunity to tamper with information.
How Blockchain works
The following example will help in understanding how Blockchain works.
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
In order to change the state of Blockchain, a transaction must occur. They will initiate the transaction.
2. Block
The transaction is packaged with other pending transactions that are held in the transaction pool (or memory), thereby 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 block of a transaction is timestamped with a cryptographic fingerprint called a hash. Each block also embeds the hash of the previous block, thus maintaining a growing list of transactions that are secured from tampering and revision.
5. Execution
The unit of value is moved from account of party X to the account of party Y, thus changing the state of Blockchain.
Benefits of Blockchain
- Distributed
All the nodes participating in the network have a full copy of the ledger, thus ensuring full transparency across the network.
- 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”.
- Trustless
The Blockchain is designed so that users can trust the ledger without trusting anyone else in the network
- Immutable
It uses an append-only data structure. Once the transaction has been written to the Blockchain, it cannot be modified.
- Secure
There are 3 factors that make Blockchain secure. First is its distributed ledger. There is no one point of failure. Second is cryptographic fingerprint called hash that is 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.
- 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.
- 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.
- Unanimous
The consensus protocol makes sure that every new block that is added is agreed upon by all nodes in the network.
Conclusion
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 in action. 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 is impacting our society by listing down use cases in different industries and how Blockchain is making its mark over there. Stay tuned!