The Basics of Blockchain Technology
If you are following cryptocurrencies, banking and investing from a decade, then you will be familiar with the terms blockchain technology and blockchain distribution ledger. It is a high-in demand industry and now we are living in a tech-driven world with lots of applications of Blockchain Technology.
So, what exactly is blockchain technology and how does it work? Let’s start from the technical definition of blockchain technology.
What is Blockchain?
A Blockchain is a decentralized, distributed and public digital ledger used to record transactions across many computers so that the record cannot be altered. A blockchain database is managed using peer-to-peer network and distributed time stamping server.
You might have gone through definition a thousand times, let's break it down into simpler terms.
What is Blockchain Technology in Simple Words?
Blockchain in a systematic approach towards recording information in a certain way where it becomes next to impossible to hack, change or cheat the system.
Blockchain in the most basic way is a chain of blocks. Each block has a history of transactions and whenever any new transaction happens it’s record is added to every participant’s ledger. This decentralized database management is called Distributed Ledger Technology (DLT).
It makes it difficult for the hacker to break the system. If a hacker wants to corrupt a Blockchain Distributed Ledger System, they will need to tamper every block in the chain in within different versions of the blockchain.
What Is Blockchain and Cryptocurrency?
Blockchain and Bitcoin are 2 different things.
Bitcoin is first decentralized digital currency, proposed by ‘Satoshi Nakamoto’ in year 2009. Bitcoin uses peer-to-peer technology to operate with no central authority or banks. Managing transactions and issuing of bitcoins is carried out collectively by the network, where as Blockchain is the technology that enables moving digital coins or assets from one individual to another individual.
How Does Blockchain Work?
Block: Block holds the transaction data. Each block contains hash of previous block. This has the effect of creating a chain of blocks from first to current block.
Each network has its own defined block time, for ex in Bitcoin network, time needed to generate and add a new block to chain is 10 minutes.
If anyone tries to tamper any block then it will change it’s hash value, and all the blocks following it will not be valid.
Hash is also not enough because after tampering all the blocks, blocks following the tamper block are re-processed then chain will become valid again. So to stop this, blockchain has a concept of Proof Of Work.
Features of Blockchain:
- Distributed Ledger: Distributed ledger technology is a digital system in which transaction and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data storage or administration functionality.
- Peer-to-Peer network: Peer to peer network is one in which two or more PCs shares files and access to devices. It maintain consistency of distributed ledger. There is no centralized database copy.
- Proof of Work(PoW): This is the most popular algorithm being used by currencies such as Bitcoin and Ethereum. In Proof of Work, in order for an actor to be elected as a leader and to choose next block that is to be added to the blockchain, they have to find a solution to a particular mathematical problem. These actors are also known as miners. It is very hard to find a solution for the given problem. Whenever a new block is mined, that miner gets rewarded with some currencies. Other nodes verify the validity of block by checking that hash of the block is less than a preset number (Every network has a global block difficulty, every block must have hash below this target).
Miners: Blockchain data is maintained at various nodes known as miners. Miners work is to use his resources to validate the block containing transactions and add it to chain.
Types of Blockchain:
- Public Blockchain: Public blockchain has no access restrictions. Ledgers are visible to everyone and anyone can verify and add a block of transactions to blockchain. For eg: Go Ethereum and bitcoin blockchain.
- Private Blockchain: Private blockchain is permissioned. One cannot join it unless invited by the network administrators. Only the invited people are allowed to verify and add blocks to chain, but everyone is allowed to view the ledger records.
- Consortium Blockchain: It is said to be semi-decentralized. Only group of organization are allowed to verify and add blocks to chain, ledger can be open or restricted to a certain group of people.
Where Is Blockchain Used?
These are some of the greatly used Blockchain applications:
- Banking: What were the issues in banking before Blockchain? -> High transaction fees -> Double spending -> Frauds and account hacking -> Financial crisis and crashes How did blockchain technology solve these issues: -> Decentralized System -> Public Ledgers -> Verification of every individual transaction -> Low or no transaction fees.
- Payment & Transfers: How did blockchain helped in payment and transfers? -> Secure Platform -> No transaction fees -> No bank account needed -> Anonymity is maintained.
- Artificial Intelligence and Blockchain: AI and Blockchain has been proved as a great pair in improving every industry where they are used. Artificial intelligence blockchain are improving every sector from healthcare, financial security to food supply chain logistics.
- Healthcare: In healthcare sectors, blockchain technology is used to store details of patients, this ensures that anyone who have access to blockchain can access the details of patients. This is highly secure, no one can access the details without knowing the person's public key and cannot make any changes.
- Law Enforcement: Blockchain has proved to be a highly secure way to maintain the details of crimes and criminals.
- Blockchain Phones: In Blockchain phones, you will get enhanced security to protect your cryptocurrency and private keys, while some devices will let you run a full bitcoin node, or even mine crypto.
- Voting: Blockchain Technology has helped in elections to require authentication of voters identity, secure record keeping, tracking & counting votes without voter fraud. So, voters can vote from any place which can increase voter turnout.
- Real Estate: Blockchain technology has offered a new way of buyers and sellers to connect with one another. Blockchain has reduced costs because it removes the intermediaries in the process.
What Is Genesis Block?
The Genesis block is the first block in the chain, the Genesis file is a JSON file that defines the characteristics of that initial block and subsequently the rest of the blockchain.
Configuration:
{ “nonce”: “0x3”, “timestamp”: “0x0”, “parentHash”: “0x00000000000000000000000000000000000000000000000000000”, “extraData”: “0x0”, “gasLimit”: “0x4c4b40”, “difficulty”: “0x400”, “mixHash”: “0x00000000000000000000000000000000000000000000000000000”, “coinbase”: “0x000000000000000000000000000000000”, “alloc”: { } }
-> extraData: Extra 32 bit memory that you can use to pass any message. -> difficulty: how difficult it would be to mine a specific block as part of that blockchain. -> coinbase: coinbase is an address to which coins have to be send after the block has successfully been mined. -> parentHash: Hash code of a parent block. As genesis block is the first block of the chain so it will be set to 0. -> mixHash: It is a key value which will be kept same for your blockchain. -> nonce: nonce is a key value that is computed by all miners -> gasLimit: Limit of resource that one can spend to mining a block -> alloc: Alloc defines the list of pre filled wallets
Combination of nonce and mixHash is known as Proof-of-work.
You need to get a specific hash value with a combination of nonce and mixHash which is less than the set value for a block, how this value is defined has a certain mathematical logic associated with that.
Basically we need to identify the value of nonce, once you add it to mixHash the value should be equivalent or lesser than the mathematical value set for that block. This is where resource gets invested, the value of nonce is something which you get by trial and error method.
What Are The Advantages of Blockchain Technology?
Due to its decentralized nature, Blockchain offers various benefits in using it in any Industry. Blockchain gives you the following advantages-
1. Increased Transparency
2. Increased Efficiency
3. Better security
4. Improved Traceability
5. Reduced Costs
6. Increase efficiency and speed
What are the sources to learn about blockchain?
Blockchain is a high in demand cutting edge technology these days, so by understanding the concept of Blockchain , you will be add something worthy to your skill set. You will make smart investment choices and you will also get ample career growth opportunities with it. Here are some highly recommended courses you can opt out for learning Blockchain technology.
1) Princeton Blockchain Course.
3) Coursera Specialization Blockchain Course
4) Udemy Python Blockchain Course
5) Uc-berkeleyx-blockchain-fundamentals
What’s the biggest thing you’re struggling with right now that we as a technology consulting company can help you with? Feel free to reach out to us at info@jalantechnologies.com. We hope our assistance will help!
