Simplest Explanation of Blockchain Technology in 10 minutes (1/2)
The 2 part beginners guide to understand about Blockchain
Do your children need to pay such huge amounts of money to a single organisation for certifying them with a degree ? If no, then what is the alternative ?
Answer lies in the 2 part series
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Our life is revolved around many responsibilities, aspirations, requirements and hope. Since ages, human beings have created and broken rules. Just when people have been facing the heat of Inflation, bureaucracy, loss of trust, power and voice; humanity is exploring a new way of living life through Blockchain Technology. Yes, Its no doubt the next big thing after Internet.
Humans depend on Central Bodies which partly control our life
Ask these questions to yourself and think about it
- How much do you depend on the ‘BANK’ for every transaction you do?
- How much dependent are you on the ‘COLLEGE’ for a degree, a Job and Knowledge ?
- Do you pay a record label/platform instead of paying directly to an artist for the same music.
Did these 3 questions made you think ‘I have no clue, why I depend on them so much. Isn’t it how the world runs ?’
Now Imagine these possibilities
- The bank has made a mistake with your transactions or the server of the bank has been hacked and money is not accessible.
- You might have paid a huge chunk of college fees only to realise that teachers are not great (or) you are not getting the job you like to do (or) you missed a master’s admission because you scored less in a subject only due to fever.
- Record label sucks money from you and the artist as well only to make you believe that the artist is good. Record label is the real winner in this process.
The right questions we should ask is
Is there a better way to maintain transaction history among ourselves instead of banks (or) maintain skill transcripts among ourselves instead of a college ?
The answer to these questions is BLOCKCHAIN TECHNOLOGY.
This is Interesting, now tell me how it actually works
This is how banks work
This is how Blockchain works (Banking Example)
Key Components in Blockchain Ecosystem
Tom, Dick and Harry are Miners
Miners = People/ Developers who run the algorithms on servers. They are spread across the world.
John and Larry are Users
Users= People who want to do transactions using Blockchain
Hash ID = Transaction ID of a bank transaction
Hash ID’s which begin with ‘000’ are signed blocks. Transactions are confirmed when they are mined by people like Tom, Dick and Harry across the world. ( They get incentives to do that :D).
Block = a page in a ledger of a bank
Just like a bank ledger page has a series of transactions written in it, a block consists of a set of transactions which is sealed with a hash ID once the block is full.
(When the Block gives a hash ID starting with ‘000’ the Block is sealed. If anyone touches the transaction details, the hash ID is changed and can be known by other people)
Proof of Work = For the block to be signed and added to the chain, the miner should find the the number (a.k.a Nonce) which leads to the right hash ID. This number is used to seal the block. All transactions in the block are now verified. As per picture above 267435 is a Proof of Work along with few other details.
Distributed Ledger = Ledger book is distributed to 1000 people in the network to maintain it.
The ledger is distributed to people like Tom, Dick and Harry who take the effort to maintain it with CPU and Electricity for servers and are rewarded with Bitcoins in return to maintain it. Their job is to keep sealing the Blocks.
Complete Flow of Transaction on Blockchain
Imagine, John wants to send $10 to Larry
There is no need of a bank in the above process. Its all done by the people and for the people.
Blockchain helps in processing transactions among thousands of people like John and Larry. These transactions are recorded on thousands of blocks which are again maintained maintained by thousands of people like Tom, Dick and Harry across the globe as distributed ledgers. This is Decentralisation of Power to people.
Just like you don’t like relying on one clock in your office and rather prefer a personal watch or mobile to check time; you need not depend on banks in future to transact money amongst your friends.
You might be having two questions now ?
a) Why do people like Tom, Dick and Harry take the effort and resources to mine the blocks and add them to blockchain ?
This is why blockchain is famous for incentives. Everyone has something to gain being a part of blockchain network. The first one to calculate the Proof of work or the number which yields the right HASH ID gets rewarded with free money for his/her efforts.
For example, If TOM mines a block by finding the number like 267435 which yielded the right hash then Tom is rewarded with money which is created automatically. It’s added to its account.
It’s like doing a Job in a bank for a salary but much more cooler ;)
b) What if someone tampers with the transaction data just like banks could have ?
Every block is linked to the previous block as shown in Figure 2 (Blocks). Every time someone tampers with data in any older blocks then this leads to change of HashID in all the following blocks. That person will have to mine all the blocks in the blockchain which is near to impossible.
When someone tries to cheat, It will lead to creation of a new chain keeping the old chain intact. Therefore, the new chain cannot keep up with all other guys in the network who are following the right chain.
However, if more than 50% of the people in the chain are dishonest then this will eventually collapse. Blockchain is built on an assumption that major part of the crowd can be trusted.
Is Blockchain only for fintech ? What are the other possibilities
Bitcoin was the first application of blockchain framework. Bitcoin is a Cryptocurrency built on blockchain. You don’t need banks for handling bitcoin based transactions. This framework led to hundreds of cryptocurrencies too.
Blockchain framework has few other components like Smart Contracts, Tokens etc which help you build layers of application above the cryptocurrencies.
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Do your children need to pay such huge amounts of money to a single organisation for certifying them with a degree ?
Imagine, linkedin was a blockchain based online university with a huge network of students and mentors. For every online course you take on lynda , every mentor you learn from, every task you accomplish you are incentivised with tokens (or points) to add it on the Linkedin Profile and your peers help you maintain the skills category of your profile. These skills become the proven record for organisations to hire you instead of looking at a resume or a degree etc
Cool isn’t it ?
Task: Just like you saw the flow of a transaction on blockchain what would be a Flow of creating a skill entry through Blockchain ?
Interested in building something in Blockchain but not sure how to do ? Read the next part on “Tech Stack of Blockchain Ecosystem”
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