Blockchain distributed parties that do not need to

Blockchain

Blockchain is a
not really an unknown term these days considering the growing excitement around
cryptocurrencies.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

When we talk
about blockchain, some of you might relate it to Bitcoin. But it is important
to understand that Bitcoin and Blockchain aren’t the same thing, infact,
Blockchain is a technology behind the very famous digital currency, Bitcoin.

But is that all
to blockchain?

The answer to
this is, No. The prospective use of Blockchain is way beyond just cryptocurrencies.

So what exactly
is Blockchain? What is so exciting about this technology that everyone is
curious to explore it?

What is Blockchain?

In Wikipedia,
Blockchain is defined as a continuously growing lists of blocks that are linked
and secured using cryptography. Each of these blocks contains a hash pointer, a
link to the previous block, transaction data and timestamp. It is an open
distributed ledger that records transaction details between two parties
efficiently in an verifiable and permanent way.

Blockchain is
basically a persistent, transparent, public, append only ledger.

It is a system
that you can add data to and not change any previous data within it. The data
added previously, would remain intact. It does this through a mechanism for
creating consensus between scattered or distributed parties that do not need to
trust each other, but trust the mechanism by which their consensus has arrived
at.

Currently, if we
need to make a transaction, most of us use a trusted middle party which is
usually a bank. 

Let’s take an
example where user A needs to transfer some amount to user B. User A would use
a third trusted middle party to do the transfer successfully to user B. The
trusted middle part would do the transfer successfully, however would charge
some amount and the transaction time would usually take an hour or so.

Blockchain
attempts to solve 3 things here:

1.      
To
transfer money without the trusted middle party, thereby enabling people to connect
directly with each other.

2.      
To transfer
money faster than the traditional system. In fact, it would be transferred
instantly or within a few minutes/seconds.

3.      
To do
the transfer work done cheaper than what the trusted middle party collects.

 

Blockchain works
on the fundamental of distributed and open ledger.

Whenever a new
block is added to the blockchain, it is shared with each node on the
peer-to-peer network and every node would verify the authenticity of the block
and arrive at a consensus post which each node would add this block to their
blockchain. Since it is decentralized, we can say that there is no central hub
where the transaction data is stored. The entire transaction details in the
blockchain is retained on the entire network, thereby ensuring the history is
not in control of one person. This ensures complete security.

In case of the
traditional system, one trusted middle party would be ensuring the authenticity
of a data, just like a centralized ledger.

So, we can say
that blockchain allows transfer of money much faster, safer and cheaper as
compared to traditional systems.

 

Basic idea of how it works:

Blockchain as the
name suggest, is basically a chain of block that contains data.

Every block in
the blockchain contains some information/data, a hash pointer of the
existing/new block and the hash of the previous block.

The data in the block
may vary depending on the type of  blockchain.
For example, a bitcoin blockchain stores the details about transactions like timestamp,
sender who sent the data, receiver who received the data and the amount of
coins.

The hash pointer
inside a block of the blockchain can be compared to a fingerprint. Like a fingerprint,
the hash code would be unique and so is its content. So once a block is added
or created in a blockchain, it is assigned a hash pointer and this as mentioned
before, would be unique and if anything inside the block is changed, the
respective hash would be changed. If the hash is changed, none of the blocks
following this particular block would stand valid. So any changes to the hash
would change the block completely.

Like a block
contains its own hash pointer, it also contains the hash of the previous block.
This creates a chain of blocks effectively, thus making the blockchain secure.

In the above
image, we have a chain of 3 block. Each block has hash and the hash of the
previous block. Block 3 points to block 2 and block 2 in turn points to block
1.

The first block
is called the Genesis block as it does not point to any other block being the
first one.

Now, let’s say you
make some changes or you fiddle with the second block. This would in turn
change the hash code of this block. Now, if the hash code of this block is
changed, the third block which is referring to the same block, but now with a
different hash code would stand invalid. All the blocks following this second
block would be invalid, thereby making the entire chain invalid.

But you can’t prevent
someone from making changes to the block just with the help of hashes. The new
generation computers are very quick and can quickly calculate hundreds and
thousands of hashes in a second. You can easily fiddle with the block and calculate
all the hashes of the remaining blocks again to make your blockchain valid so
as to add it to the chain.

To palliate this,
blockchain uses a mechanism called Proof-of-Work, which slows down the creation
of new blocks. In case of bitcoin, it takes about 10 minutes to calculate the
required proof-of-work and add a new block to the chain.

This mechanism
makes it difficult to make changes easily to a block, because if you fiddle
with one block, all the blocks following this one would have to be
recalculated.

So, we can say
that the blockchain secures itself not only with hashing, but also with the
proof-of-work mechanism.

Blockchain can
also secure itself by being distributed.

Blockchain uses a
peer-to-peer network to manage the chain instead of giving this responsibility
to a single entity, like in case of traditional systems. Anyone and everyone can
join this network. Whenever a person (node) joins this network, a copy of the
entire blockchain is shared with him. This node can then verify and check if
everything is in place.

When a new block
is created by someone, this block is shared with everyone on the peer-to-peer
network so that each node can validate and check if the block has not been manipulated
or tampered. If everything is fine and proper in the block and is verified by
each node, they would then add this block to their blockchain. A consensus is
created by all nodes on the network. The agree on which blocks are valid and
can be added to the blockchain if everything is proper, if not it will be
rejected by everyone else on the network.

In this way, so
as to effectively mess with the blockchain, you have to mess with every one of
the pieces on the chain, re-try the proof of work for each square and take
control of over half of the shared system, at exactly that point will your
altered piece will end up noticeably acknowledged by every other person, which
is for all intents and purposes difficult to do.

This is just a
basic idea of how it works, this would be explained more in detail in the upcoming
chapters.

Applications made
on blockchain today are being explored and used in many industries as a
cost-effective and secure way to create and manage a distributed database and
also to maintain records for all types of digital transactions.