Blockchain Game-Changing Technology

Blockchain technology is challenging the status quo by using math and cryptography. To understand blockchain, we need to focus on its name. As the name indicates, blockchain is a chain of blocks that contains information. This technique was originally intended to timestamp digital documents so it’s impossible to backdate them or to tamper with them. It is basically a network of computers that all have the same history of transactions and instead of there being one company with one database that holds all the information, the same list is held by all these systems like you could have it on your computer and then it gets validated by every system called node and the new block is added to the blockchain. The people who run the system use their computer to hold bundles of records submitted by others, known as “blocks”, in a chronological chain. Blockchain uses cryptography to ensure that records can’t be counterfeited or changed by anyone else. It is like a huge ledger record whose authenticity can be verified by the entire community.
Genesis Block
Whenever we deploy a network, we create the first block called the genesis block. It is generated by the originator of the blockchain. All blocks are connected to the genesis block and all blocks are connected since the genesis block form the blockchain. Every block in blockchain traces back to the genesis block. No transactions occur in the genesis block and it only contains Coinbase transaction because it is the first one to be created to form a blockchain. Thus, it does not have a reference to the previous block.
Now the question is how these blocks are chained with each other, how these blocks traceback to previous blocks and how are they immutable?
Well, let’s take a closer look at a block. Each block contains some data, the hash of the block and the hash of the previous block. The data that is stored inside a block depends on the type of blockchain. The blockchain, for example, stores the details about a transaction in here, such as the sender, receiver and amount of coins. A block also has a hash. You can compare a hash to a fingerprint. It identifies a block and all its contents and it’s always unique, just as a fingerprint. Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change. So, in other words: hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it no longer is the same block. The third element inside each block is the hash of the previous block. This effectively creates a chain of blocks and it’s this technique that makes a blockchain so secure. Changing a single block will make all following blocks invalid because the hash would be changed, and the next block could not have the correct hash of the previous one.
Mining
Mining new coins take a lot of computing power because of the proof-of-work algorithm. The proof-of-work mechanism is used to reach consensus between many nodes on a network and it is a way to secure a blockchain. The proof-of-work algorithm works by having all nodes solve a cryptographic puzzle. This puzzle is solved by miners and the first one to find the solution gets the miner reward called incentive. When a transaction goes through the decentralized ledger, it must be verified by the network, this process is called mining. After the block is solved, it gets added to the public blockchain. In simple words, Proof-of-work involves the process of mining so that we could validate transactions, the miners get their reward and another block gets added of the blockchain.
This was proof-of-work but what is proof-of-stake?
In proof-of-stake, miners are instead called validators. There is a block that needs to be generated and there are validators. Each one of them deposits their money to the blockchain to get the opportunity to validate or sign a block.
Blockchain came into existence majorly for cryptocurrencies like Bitcoin, Ethereum, Tron etc. The thought was to make the transactions secure. On the other hand, the industries looked on blockchain as a solution to their problems. They thought to implement it in their areas like finance or education
ICO:
ICO is the abbreviation for initial coin offering. This expression describes a relatively new way of crowd-funding. ICOs are mainly issued by early-stage companies coming from the cryptocurrency sector. The so-called “Initial Coin” is more of a digital voucher or “utility token” as the intended cryptocurrency does not yet exist. That way, individuals can invest in a cryptocurrency at an early stage, before it exists. In most cases, investors acquire a so-called ERC20 token, which later entitles the investors to exchange it for the newly created cryptocurrency on the new blockchain.
If the company’s efforts realizing the project are successful, the coins will one day hit the cryptocurrency exchanged.
There are two major types of blockchain, Permissionless blockchain and Permissioned blockchain. You need to understand the differences between these two to understand which one of these best suits your business problems.
Permissionless Blockchain:
It is also known as the Public or decentralized blockchain.
Anyone can create and publish smart contracts
Anyone can run a node
Provide certain guarantees on the immutability of the ledger
Relatively high level of anonymity
Scaling is a massive challenge
There are monetary incentives for those running nodes (miners).
And because of the nature of the proof-of-work algorithm, permissionless blockchain consumes incredible amount of energy
The most common examples of permissionless blockchain today are of course the bitcoin blockchain and the etherium blockchain, decentralized, secure, and open to anyone.
Permissioned Blockchain.
It is also called Private blockchain. Let’s see how it is different from the public blockchain.
Permissioned blockchains may be more attractive for institutions operating timestamped registries and ledgers, as most jurisdictions require registration of registry processors;
Provide certain guarantees on the immutability of the ledger
This might use different consensus, typically does not need incentives for participants
These Permissioned blockchains could form a more controlled and predictable environment than permissionless blockchains.
Unlike cryptocurrencies, Permissioned blockchains do not generally have native tokens. Native tokens are necessary for cryptocurrencies to provide incentives for transaction processors;
