Jul 14 ·6 min read What is Blockchain? Blockchain is a buzzing concept, almost everyone has heard this term.Blockchain has been successful in dragging the attention of the public towards it for sure.In this article, you will get in depth knowledge of the concept.So let’s dive in deeper and understand.
A blockchain is, in the simplest of terms, a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity.Each of these blocks of data (i.e.block ) is secured and bound to each other using cryptographic principles (i.e.
chain ).
The Blocks are the digital information and the chain is the public database .In a layman’s terms, it’s a Distributed ledger .It holds data of transactions ensuring security, transparency and decentralization.If a transaction is approved by a majority of the nodes, then it is written into a block, each transaction generates a hash.
The hash depends not only on the transaction but the previous transaction’s hash.Each block refers to the previous block and together make the Blockchain.A Blockchain is effective as it is spread over many computers, each of which have a copy of the Blockchain.
Figure 1 : How Blockchain works Blockchain technology dates back to 1991.Stuart Harber and W.Scott Stornetta, two researchers, wanted to implement the Blockchain technology to stop tampering of the documents.But the first real application of the technology was done in 2009 after the launch of Bitcoin.Bitcoin and Blockchain are often confused as one, but bitcoin runs on blockchain.Bitcoin is a virtual or crypto currency.
Blockchain technology is broader than finance.It can be applied to any multi-step transaction where traceability and visibility is required.There are three main pillars or properties of Blockchain Technology which have helped it gain widespread acclaim are Decentralization, Transparency and Immutability .
Let’s understand through a simple example the concept of Blockchain: Suppose Archie , residing in Germany wishes to transfer money to her friend Saniya , staying far away in India.Obviously Archie will transact this money with an involvement of a third party- Bank.In this conventional process, money gets transferred in Saniya’s account but there are few shortcomings of this traditional process : The fee or transfer charges are quite high.The time taken to complete the transaction is very high.
There can be server or link failure which can even elongate the process.It’s here where Blockchain technology comes to the forefront.
There are various advantages of the Blockchain technology .Let’s see what are they: It’s the fastest mode of peer to peer transfer of funds, Just a click away.Decentralization being one of the pillars of the Blockchain makes it harder to alter or tamper the data.Cost reduction by eliminating the third party .It’s known for its transparency in transactions.
It’s difficult to hack in comparison to the conventional methods of documenting and transferring.It’s a very secure and safe process.Just like every coin has two sides, everything has merits and demerits, Blockchain too have demerits .They are as follows: The technological cost is too high.It means, the bitcoin mining cost is very high .
There is a long history of illicit activities operations in the Blockchain network.Though difficult, Blockchain is also susceptible to hacking .How Blockchain Works? Let’s roll ahead and understand the following concept: The basic structure of the Blockchain How Blockchain works What are the components of a block Who are miners or special nodes? The diagram below is Blockchain structure which will lend you more precise and clear understanding of the concept.Figure 2 : A Blockchain structure In the given Blockchain structure there are four participants namely Archie, Saniya, Sagar and Suraj between whom the transactions take place.And you can also see blocks with their digital information stored inside them Whenever a transaction takes place.These four participants share an open ledger and any transaction happening between any two participants will be recorded in the block.This way the members of the public or private Blockchain are a part of all transactions going on and have detailed knowledge of all.Not a single member has centralized authority and it doesn’t include any third party like a bank etc.
The block is a very important part of the Blockchain.It holds various information regarding the transactions like : Timestamp : it’s the time and date of each transaction.Each transaction is secured by the digital currency.Nonce : Nonce is a random number or bit string used to verify the Hash of the block.Block hash : The hash is cryptographic in nature.Each hash has a unique value, unique identity .This hash value not only provides security and Identity, but also builds a chain from the Genesis block to the last block of the chain.Smart contracts : In very basic terms, it’s a digital form of any agreement.
However in technological terms, it’s a computer program, automated to run when a particular criteria is met in the system.They are designed for peer to peer transfer without any third party intervention.Consensus Algorithm : Whenever a transaction takes place, the agreement of each member of the chain is necessary.It’s only after the validation of miners or special nodes of the chain, the transaction is completed.
So every transaction takes place with consensus and the data of each transaction is now available to each member, thus it becomes difficult to tamper or alter it.What is the role of miners or special nodes : Miners play a very crucial role in a Blockchain.Let’s understand their role from the below diagram.Figure 3 : Role of special nodes or miners As you can see in the diagram the transactions take place between Saniya and suraj.Saniya wants to transfer money to suraj.
They are the active participants and Archie and Sagar are silent participants and are called miners or special nodes .Saniya broadcasts that she wants to send money to suraj, thus this message reaches all participants and miners start competing with each other to validate the transactions first and earn some Bitcoins as a reward.Here, the role of miners comes into play.The two important roles are: The miners start to find out if the sender has sufficient balance to send money.They can easily find out because it’s an open ledger.
If the sender has sufficient balance, the miner validates the transaction and the transaction gets completed.Secondly, the miner finds a special key, a puzzle.The miner generates the puzzle and when the puzzle gets solved, the transaction creates a new block and creates a link with the previous block.Thus, the miner plays a crucial role in the transaction and they earn the rewards for maintaining the chain.A public blockchain has absolutely no access restrictions.Some of the largest, most known public blockchains are the bitcoin blockchain and the Ethereum blockchain .Ethereum is the second largest cryptocurrency platform by market capitalization, behind Bitcoin.
It is a decentralized open source blockchain featuring smart contract functionality.In this article, you learnt the basics of Blockchain.In our upcoming articles, we will throw light on other different concepts like Ethereum , Smart Contract , and also talk about Hydro and its phrases .
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