Initial days, Computer scientists made many types of researches on how to structure and share data over the network. Java in earlier days came up with persistent data via java persistent API(JPA). They are used in JDBC, Serialization, file, IO, JCA, Object Database, XML database, etc.
But these technologies are not full proof. Here comes the Blockchain technology to aid the distributed database.
Blockchain technology first was introduced by Sturt Haber and Wiscott Stornetta in the year of 1991.
Financial Terms used in BlockChain
Before we deep drive into BlockChain, let us understand a few basic simple concepts of finance that help us to understand the BlockChain better.
Ledgers are a system of records for a business. A business can have several sub-ledgers connected to the main ledger.
A transaction is a systematic process of transferring assets to another ledger. Transactions can be inbound and outbound.
A Contract is an agreement and conditions for certain transactions to happen.
Concept of Cryptocurrency
Cryptocurrency is a digital and virtual token with some value attached to it. Cryptocurrency operating model is very different from regular currencies. The decentralization behaviour of the Blockchain introduced cryptocurrency.
How do Bitcoin and Blockchain work?
People throughout the world have Bitcoin’s portion. In case, people want to spend this portion to a vendor then this blockchain comes into the picture.
In general currency, the central authority (the bank or government) governs the value and regulate it. In Bitcoin, the Blockchain network nodes verify the transaction in a decentralized manner.
So if a customer wants to pay any item using Bitcoin, upon request the computer node verifies the transaction by solving a hash for a block’s transaction.
This solving hash is often referred to as mining. If the hash solve is successful, the amount gets transferred(in terms of cryptocurrency).
What is the Wallet in Bitcoin and Blockchain?
Participants in the Bitcoin and Blockchain technology should have another programme called Wallet. This digital wallet has two unique and distinct cryptographic keys.
The keys are as follows:
- Public key
- Private key
The public key is part of block chain ledger as part of the user’s digital signature and responsible for deposit and withdraws the amount.
The public key is the shortened version of the private key.
However, note the reverse process to generate a private key from the public key is almost impossible. So if somebody tries to get a bitcoin using the public key, will not be able to withdraw.
Concept of Cryptography
All Blockchains are secured with cryptography. All rules are governed by interested parties without having a central body.
Difference between Blockchain and Bitcoin?
- Blockchain is a network that is empowered by the Bitcoin- the Cryptocurrency.
- Blockchain Bitcoin is a secured protocol that enables to transfer securely the Bitcoins.
- The Blockchain is a generic class of software and Bitcoin is a specific Cryptocurrency.
What is Blockchain?
Blockchain is a distributed immutable data structure that can create a digital ledger of data. This digital ledger can be shared over the network(internet) to any independent parties interested to keep a track of the ledger.
All Blockchains are secured with cryptography. All rules are governed by interested parties without having a central body. This decentralization of the database structure is a powerful feature of BlockChain.
Blockchain, in theory, creates a permanent ledger records and maintain a history of the transactions. For any change in the records, the community or maximum of its members needs to agree.
So if a record enters into Blockchain it is very tough for a single member to alter. The insertion of a record is called transaction or entry to blockchain.
The insertion process of entry and validation of the entry is governed by the predefined core audience.
The first Blockchain was conceptualized by Satoshi Nakamoto in 2008.
What is the need for BlockChain?
Fake products are sold on e-commerce websites, Fake ids are flooded in social profiles, Fake promises on organic products, Fake labels of the normal product as organic, lots of property, contract disputes etc are the prime reason for authenticity crisis in the mind of online users.
Blockchain is such a technology that uses immutable, unaltered records that promotes online transparency to the users. It also promotes revenue sharing system from within the system of the users.
On the other hand, in traditional online purchasing system hackers/data thefts can do the followings:
- Steal the Credit card/Debit card number and secret pin number.
- Can track a person for his online behaviour.
- Cab steal online user id and password.
- Can secretly monitor the online activities.
So overall, the traditional online process is not that safe as we think. Moreover, the central data repository for any online store, bank or online platform is vulnerable to hacks, leaks etc.
Even nowadays the sensitive data is getting sold secretly to the third party firm at a huge cost.
Current processes are complicated, hack prone and time-consuming whereas the blockchain provides total transparency with faster turn around. Blockchain can thus eliminate the third party’s wrong play to sell the products.
How Blockchain Works?
In order to work with BlockBhain or to add blocks to the Blockchain, the following steps need to be performed.
- A transaction must be done and request to add the record to the block is raised.
- A block may contain several records.
- The request then transmitted over the network for all interested parties.
- Once the blockchain algorithm receives the request, it tries to verify the same by using its algorithm in the predefined computers.
- If the verification process detects that the transaction is faulty, it throws it out.
- Upon successful verification, it stores the information and attaches the block the blockchain.
- This time it uses the hash technique to secure the incoming block.
- Once the new block gets added to the blockchain, anybody can view the block.
What are the types of BlockChain?
Blockchain, in a nutshell, is a peer to peer system on the distributed computers of the several networks. They are referred to as full nodes. BlockChain can be of primarily three types:
- Public BlockChain
- Permission BlockChain
- Private BlockChain
Public BlockChain can be distributed over a large network. They have open source code and they are open to everybody. These codes can be maintained by either a community or can be kept on public code repository like git. They run on the native token.
Example – Bitcoin.
Permission BlockChain is a covered layered approach over the public blockchain. Hence they can be distributed over the network and depends on native tokens. Since it is covered, the source code is not open to all.
Private BlockChains are hidden from common coders. Private BlockChains do not use tokens. The code is modified as per the authority. The membership is only invite based, highly controlled.
Example- Trade Confidentials.
Concept of Blockchain Protocol
A Blockchain protocol powers a software to operate on BlockChain. The well-known blockchain protocols are:
These protocols secure the data on the full nodes.
The structure of BlockChain
A Blockchain actually consists of three major parts:
A block is full of transactional records over a fixed period of time. The size, time, event triggering differs from one blockchain to another. They are governed by the community. The community can define if the blockchain will use cryptocurrency(tokens) to secure records.
Blocks can store various information like- time, date,n price details of a product, etc. Blocks use a unique digital signature(kind of a username) and store this information. This block can be accessed by the users or sellers.
Blocks can distinguish themselves from other blocks by using the hash. The Hash is the digital representation of a block. Hash output of the previous block will be the input of the next block.
Block can hold multiple transactional data. In that case Hash(Hash(Hash(…..N))) formula will be used. This Hash of hash of hash …N will be called Markel root.
The root of all blocks is called the Genesis Block. The importance of this genesis block is that the previous hash is zero(0). This denotes that this is the root of all block. The genesis block was created by Satoshi Nakamoto in 3rd Jan 2009. All entries of this block were hardcoded to provide a foundation.
Chaining is a technique used to connect the blocks. Chaining or Combining blocks are carried out using the hash technique. A hashing algorithm and code is a one-way function that is not possible to decrypt. However, it can be used to map different size of data to a bit string of fixed size.
A BitString is 32 characters long.
The secure hash algorithm(SHA) is commonly used in Blockchain hashing. Among all the hashing techniques, SHA-256 is strongest. It can generate almost fixed-sized 32-byte hash output.
Once the new block is created and getting added to the blockchain, every block participating in the chain must validate and provide approval for the addition. This process is known as the consensus of the blocks.
Once all these blocks provide their consensus, the new block gets added to the chain. This also means that the block must be replicated to add to all participating nodes.
Various consensus models are available in the blockchain. They are as follows:
- PoW- Bitcoin, Ethernum etc
- PoS- Nxt
- Delegated PoS(DPoS)
- Round Robin
- Proof of Elapsed time
- PBFT(Practical Byzantine Fault Tolerant Implementation)- Hyperledger fabric V0.6
The network consists of full nodes. Each of these nodes keeps track of the complete record of all transactions. These nodes are distributed over the world. Mostly these nodes can be operated by anybody.
However, operating on the nodes are extremely difficult, super expensive and time-consuming. This is the reason why people do it with a cost that is associated with it and it is in the form of cryptocurrency.
It is like a SAS(Software As a Service) approach where people get paid by a portion they worked. The price is given as a token.
How to connect Local computer to Blockchain?
Users can connect their local computer to the blockchain they are interested in. They will get feeds of the blockchain just like any social media like Pinterest and Facebook. They will always get the latest copy of the blockchain. It will be updated as and when a new block gets added to the chain.
Over the network, many users may register themselves as nodes and receive all copies. As this is decentralized and present over the network, even if a hacker gets access to it, the hacker needs to manipulate all records present in every node.
Another aspect is that Bitcoin Blockchain does not give access to identify information about the transaction but they can be read. This is due to the underlying security.
How Blockchain is secured?
Blockchain keeps adding the new blocks at the last of the chain. This is called height. As per January 2020, the total height reached 615400. This is why it is very tough to go back to all the past records.
To change a single hash and its parent hash hackers need to accomplish a huge computational job.
On top of this, the consensus model adds more security to Blockchain. Here the user needs to prove themselves before even participating in a blockchain network. This technique is called the “Proof of Work”. In this technique, the participating computer needs to prove that it has completed solving a very complex mathematical problem.
So mining the cryptocurrency is not so easy.
Features of Blockchain
- Blockchain is not dependent on a single computer. It is distributed in nature. Hence Blockchain works even if some parts of the network is down, corrupted, hacked etc.
- Maximum accuracy in the chain to maintain records.
- Effective overall cost reduction if implemented over large organizations.
- Nature of operation is decentralization.
- Blockchain is very efficient in cross border transactions.
- Blockchain can provide private transactions.
- All Blockchain transactions are secured and transparent.
Blockchain usage in the industry
Currently, the blockchain is used for monetary transactions but the blockchain is capable of storing other sets of data as well.
Banking and Financial institutes get the major benefits of blockchain technology.
Parallel currency- Cryptocurrency
In the case of a centrally controlled and regulated currency, if the bank or government fails or unstable, the currency becomes a risk. In the case of distributed cryptocurrency, it is relatively safe.
Healthcare industry also gets benefited from storing patients records in the blocks. They can be accessed from anywhere. Once digitally verified and placed on the blockchain, they can not be changed with the help of the public key. Its access can be controlled. No need to carry huge medical files and records with the patients.
In India as well as the whole World is facing issue with offline property records. Blockchain can resolve the property record related issues. Once the property-related data is entered into property blockchain, they can be altered.
In case of a property dispute, they can be settled using the Blockchain’s data.
The current property record-keeping is time-consuming, human error-prone thus costly.
Blockchain consumes very fewer data with the contrary to the current files, scanned copies hence Blockchain is very efficient and fast.
Using blockchain, we can eliminate the paperwork of a regular contract. The smart contract is powered by the Blockchain. Just like a traditional contract, the smart contract is also having the contract agreements. Once both parties agree and digitally signed, they can be placed to the blockchain.
Once entered, the contract becomes a smart contract and can not be altered.
Groceries and another supply chain Industry
Suppliers of groceries and other supply chain industry can also put their records on the blockchain, that allows the other companies in the blockchain as well as buyers to verify the records for authentication.
Use in Voting
Recently with increasing fraud during the election process and to eliminate faulty voting system(machine), Blockchain can be used to cast a vote of individuals. Blockchain can not only secure the vote but also publish the result in a short time.
Gaming is another popular industry that may rip the benefits of blocj\kchain by storing the data into the blockchain. However, very few games have this option enabled.
Advantages of Blockchain Technology
- Blockchain provides security and trust layer over records on the internet.
- Blockchain creates trust in digital data. Once written lasts forever.
- Blockchain enables financial transactions instantaneously. (like fund settlement, fundraise, etc).
- Profile, Property rights, identity etc are no longer maintained offline in a file and can be found online in a single click.
- No human involvement is required hence the process is human accidental/intentional error-free.
- It serves better accuracy with quality.
- It reduces the cost of the third-party verification process
- Decentralization makes it very secure and can be accessed from anywhere.
- Transparent technology.
Disadvantages of Blockchain Technology
Just any other technology, Blockchain is also having some disadvantages:
- The most important factor is that all parties need to agree to use blockchain. But for this, the person on the lowest level of the chain(produce like farmers) needs to have adequate knowledge of computer.
- Higher technology cost for mining.
- Rate of the transaction is very less/seconds.
- Theoretically, Blockchain can be hacked.