Jan 27, 2021
Blockchain Basics
I started learning about Blockchain thanks to the buzz created by the likes of Bitcoin and Eth cryptocurrencies. Listened to few podcasts , random youtube videos and convinced that this technology has the potential to reorder or change the fundamental interactions of the world that we live in. So decided to go in depth through learning a thorough academical course. The below write-up is a re-presentation of whatever was taught, read and heard from various sources that were mentioned towards the bottom of article.
What the hell is a blockchain? Why should you care about it?
By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin blockchain, the tech community has found other potential uses for the technology.
Unlike traditional methods, blockchain enables peer to peer transfer of digital assets without any intermediaries. The blockchain by itself has taken a life of its own and permeated a broad range of applications across many industries, including finance, healthcare, government, manufacturing, and distribution.
The blockchain is poised to innovate and transform a wide range of applications,
- Including goods transfer for example, supply chain.
- Digital media transfer, for example, sale of art.
- Remote services delivery, example, travel and tourism.
- Platform for decentralized business logic, for example, moving computing to data sources
- Distributed intelligence, example, education credentialing.
Additional applications of blockchain include distributed resources,
- For example, power generation and distribution.
- Crowd funding for example, Startup fund raising.
- Crowd operations, for example, electronic voting.
- Identity management, for example, one ID for all your life’s functions.
- Government public records and open governing.
Moreover, blockchain can enable an inclusive economy. It can enable a person in a remote corner of the world to partake in a democratic process. Opportunities for innovative applications are endless. There is a dire need for critical thinkers, designers and developers who can envision and create newer application models on blockchain to benefit the world.
To understand the technology behind Block-chain its better to learn by analogy in tandem to the Bitcoin technology. Two major contributions of Bitcoin that helped in building blockchain technology as a whole are
- A continuously working digital currency system, and
- A model for autonomous decentralized application technology called the blockchain.
Story behind Bitcoin emergence :
We can all agree that the advent of the internet in the world wide web has transformed every aspect of our lives, from stock markets to street corner food trucks. It has enabled a technology explosion with Web 2.0 and the world of e-commerce applications.
Around 2008, 2009, when the institutions and markets we trusted went crumbling down, and everybody was running away from the Wall Street, a mysterious person, or persons, called Satoshi Nakamoto, introduced a new digital currency, a cryptocurrency called Bitcoin.
Bitcoin enabled an innovative platform for peer to peer transfer of value without any central authority. With no central authority, how did Bitcoin realize trust and security?
By implementing software programs for validation, verification, consensus in a novel infrastructure, Bitcoin has enabled the transfer of value.
Later on in about 2012, 2013, computation elements were added to the blockchain infrastructure that has opened up a whole world of possibilities beyond simple currency transfer. These innovations are significantly shaping the direction of Web 3.0.
What is a blockchain?
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). Blockchain enables peer to peer transactions in a decentralized network establishing trust among unknown peers, while recording the transaction in an immutable distributed ledger. To summarise, the reason why the blockchain has gained so much admiration is :
- It is not owned by a single entity, hence it is — Decentralized
- The data is cryptographically stored inside and immutable, so no one can tamper with the data that is inside the blockchain — Immutable
- The blockchain is transparent so one can track the data if they want to — Transparent
Let’s understand centralized versus decentralized network using a common scenario.
Consider a scenario where customer wants to buy an item using her credit card. Let’s enumerate the intermediaries involved in accomplishing this task.
- We have a credit card agency,
- we have a customer bank, we have a credit cards bank,
- we have an exchange,
- we have the merchant’s bank, and finally, the merchant.
This is an example of a centralized system that we are so used to. Now compare this with a system where peers can transact directly with each other irrespective of where they are located. The blockchain is a simple yet ingenious way of passing information from A to B in a fully automated and safe manner. One party to a transaction initiates the process by creating a block. This block is verified by thousands, perhaps millions of computers distributed around the net. The verified block is added to a chain, which is stored across the net, creating not just a unique record, but a unique record with a unique history. Falsifying a single record would mean falsifying the entire chain in millions of instances. That is virtually impossible.
How do we establish trust among the peers in such a decentralized system?
By having a process in place to
- validate,
- verify, and
- confirm transactions through consensus
Three processes to ensure a transaction
So, validation, verification, consensus, and immutable recording lead to the trust and security of the blockchain.
To explain the working of Block-chain using non-technical jargon (remember analogies suffer from leaving out details), picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.
Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
To go in deeper with the Google spreadsheet analogy, read this piece from a blockchain specialist.
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again). With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people.
Imagine the number of legal documents that should be used that way. Instead of passing them to each other, losing track of versions, and not being in sync with the other version, why can’t all business documents become shared instead of transferred back and forth? So many types of legal contracts would be ideal for that kind of workflow. You don’t need a blockchain to share documents, but the shared documents analogy is a powerful one.” — William Mougayar
In the following articles, I will try to delve deep into the technology aspects of a functioning blockchain.
