What is Blockchain technology ?
The term block chain technology refers to the transparent, trust less, publicly accessible ledger that allows the user to securely transfer the ownership of units of value using public-key encryption and proof of work methods.
To quote Marc Andreessen
The practical consequence… For the first time, a way for one Internet user to transfer a unique piece of digital property e to another internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.
In 1991, Blockchain technology was first introduced by Stuart Haber and W. Scott Stornetta. The two researchers wanted to implement a system where document timestamps could not be tampered with. In January 2009 Bitcoin was launched and blockchain had its first real-world application.
To understand blockchain technology in the simplest words, it is a combination of proven technologies that have been applied in a new manner. It is the particular instrumentation of three technologies namely the internet, private key cryptography and a protocol governing incentivization.
In this technology, digital information is distributed but not copied. Originally it was devised for digital currency, Bitcoin.
Bitcoin creator Satoshi Nakamoto came out with the idea which became useful and resulted in a system for digital interactions where trustable third party need.
In this technology, which represents an innovation in information registration and distribution, eliminates trusted party requirement needed to facilitate digital relationships.
What is the meaning of digital trust?
Trust can be defined as the risk judgment amongst different parties that work collectively. And in the digital world, it refers to proving identity that is authentication and proving permission that is authorization.
Regarding blockchain technology, private key cryptography provides powerful ownership tool that fulfills the criteria of proving identity or authentication.
Possession of a private key is ownership. Having private keys saves a person from sharing personal information with other needed for digital exchange which often exposes them to hackers.
But mere authentication does not suffice the purpose of security. Authorization in the form of the distributed network reduces the risk of centralized corruption or failure. The distributed network is committed to the transaction networks record-keeping and security. Authorizing transactions can result only when the entire network applies the rule upon which it is designed popularly called a blockchain protocol.
Authentication and authorization through encrypted keys allow interaction in the digital world without being dependent on trust.
For the authentication process, blockchain networks have implemented tests for computers that want to join and add blocks to the chain. The tests are called “consensus model ”.It require users to “prove” themselves before they can participate in a blockchain network. Blockchain technology is hence referred to as the backbone for the transaction layer for the Internet.
How does blockchain technology work?
The blockchain network has no central authority and hence is a very democratized system in which the information is open for anyone and everyone who see.
It is a very simple yet ingenious way of passing information from one person to another in a fully automated and safe manner.
In this technology, one party to the transaction starts the process by creating a block. Then this block is verified by millions of computers that are connected through the internet. This verified block is then added to the chain, which is stored across the net. Unique records with unique history are created.
In case a single record is falsified, the entire chain in millions will be falsified. Bitcoins use this model for monetary transactions. The blockchain database is not stored in any single location and hence it is easily verifiable.
There is no centralized version of the information exists for the hackers to corrupt. Information is hosted by millions of computers at the same time and the data is assessable to those on the internet.
The reason behind the popularity of blockchain
Numerous reasons have contributed greatly to the popularity of blockchain technology and few of them are as follows :-
1) Blockchain is transparent so anyone can track the data available on the internet
2) It is immutable which means that no one can temper the data inside the blockchain
3) The data is cryptographically stored inside the technology
4) There is no centralized ownership by any single entity
Main properties of blockchain technology responsible for its gaining widespread acclaims are transparency, immutability, and decentralization.
The blockchain is a linked list containing data and a hash pointer pointing to its previous block, creating a chain henceforth.
Blockchain uses a special kind of network known as peer to peer network where the entire workload is divided among participants. These equally privileged participants are called as a peer. There is no central server rather several distributed and centralized peers.
This peer to peer network structure in blockchain technology is structure according to the consensus mechanism.
The blockchain cut out the middleman for money transfer transactions as personal computing becomes accessible to the general public.
The blockchain are made up of digital pieces of information that can be divided into three parts :-
- Blocks store information about transactions like the date, time, and dollar amount
- Blocks store information about who is participating in transactions but not using names. It is recorded without any identifying information using a unique “digital signature”.
- Each block stores a unique code called a “hash” that allows user to keep it apart from every other block.
A single block on the blockchain can actually store up to 1 MB of data. A few thousand transactions can be stored under a single block, altering with the size of transaction.
Whenever a new block is added to the blockchain, it becomes publicly available for anyone to view. There is an access to transaction data, along with information about when (“Time”), where (“Height”), and by who (“Relayed By”) the block was added to the blockchain.
After the addition of a block to the end of the blockchain, it is very difficult to go back and alter the contents of the block. Each block contains its own hash, along with the hash of the block before it.
Hash codes are created by a math function to convert the digital information into a string of numbers and letters. If the information is edited in any way, the hash code changes as well.
When one person pays another for goods using Bitcoin, computers on the Bitcoin network tries to verify the transaction. In order to do so, users run a program on their computers and try to solve a complex mathematical problem, called a “hash.” When a computer solves the problem by “hashing” a block, its algorithmic work will have also verified the block’s transactions. The completed transaction is publicly recorded and stored as a block on the blockchain, at which point it becomes unalterable. In the case of Bitcoin, and most other blockchains, computers that successfully verify blocks are rewarded for their labor with cryptocurrency. This process is called as Blockchain mining.
To conduct transactions on the Bitcoin network, participants must run a program called a “wallet.” Each wallet consists of two unique and distinct cryptographic keys: a public key and a private key. The public key is the location where transactions are deposited to and withdrawn from. This is also the key that appears on the blockchain ledger as the user’s digital signature. A user’s public key is a shortened version of their private key, created through a complicated mathematical algorithm.
Advantages and Disadvantages of Blockchain
- Improved accuracy by removing human involvement in verification
- Cost reductions by eliminating third-party verification
- Decentralization makes it harder to tamper with
- Transactions are secure, private and efficient
- Transparent technology
- Significant technology cost associated with mining bitcoin
- Low transactions per second
- Susceptibility to being hacked
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