Blockchain will be a game-changer, so let us gear up.
Unless you have been living under a rock, you have probably heard of Bitcoin and Blockchain. After all, they are the year’s keywords, and they are now trendy and media favorites. Even those who have never mined a cryptocurrency or have a basic understanding of how it works are discussing it. Non-technical friends outnumber technical pals in my life. They have been pestering me for weeks, demanding that I explain this new lingo to them. I am sure there are tens of thousands of people who feel the same way. When that happens, it is time to create something that everyone can point other lost souls to — that is the goal of this blog — written in plain English that any average internet user can comprehend.
What is a “block”?
Assume that all transactions are recorded on paper, with 25 lines per sheet. The community will “verify” the transactions on this current page once a sheet has been filled up (25 transactions). It is validated by group consensus if the majority of the community agrees that the 25 transactions are all the same. The page is added to a stack of previously validated sheets once it has been validated. Because once a sheet is certified, it cannot be modified by joining the sheets together, each sheet on the stack can be assumed to be trustworthy. This process is called forming a block.
How are blocks “chained” together?
We embed information from the previous sheet of paper into the new, freshly approved sheet to link our sheets together. Our piece of paper is equal to a block in Blockchain. Chaining is the process of integrating a prior block of information into the present block of information. As a result, the word Blockchain was coined.
Today, all data in a block is processed through a specific procedure called a “cryptographic hash” to link them together. Cryptographic hashes generate a one-of-a-kind output for a given input. As a result, each block’s hash will always be unique depending on the inputs as shown in figure 1.
To connect or chain data blocks together, the current block’s header provides the hash of the previous verified block (Figure 2). Changing the contents on any block in a Blockchain will produce a completely different hash, which will not match the hash in the next block header(Figure 3), resulting in the Blockchain being broken and all blocks linked to the modification being invalidated. This gives Blockchain its immutability (inability to be changed) and makes it very resistant to censorship.
What is Blockchain?
The anonymous Satoshi Nakamoto came up with the concept of blockchain, which he documented in a whitepaper. The concepts discussed in this whitepaper led to the creation of Bitcoin, the world’s first and largest Blockchain. At its core, Blockchain is a record-keeping system that can track the movement of monetary wealth in the form of “tokens” or “coins.” Bitcoin and other cryptocurrencies like Ether, LiteCoin, and Monero are instances of this at the moment. By offering a digital unchangeable ledger that is widely distributed and peer-validated, blockchains are an effective enabling platform for cryptocurrencies. Because each of the above-mentioned cryptocurrencies has its Blockchain, they cannot be exchanged directly. It is vital to remember that a Blockchain does not require a currency, and numerous intriguing and compelling use cases do not necessitate the usage of specific money, coin, or token. In essence, blockchain is a ledger that serves as a record of asset ownership, independent of the type of asset. A Blockchain can also store nearly any sort of data that is defined by the Blockchain’s particular storage rules. This record-keeping system can keep track of both monetary and non-monetary transactions of significance. This includes things like transferring ownership, updating a medical record, capturing a training certification, and documenting crucial single-party statements.
The usage of Smart Contracts, which are nothing more than software programmed events, can make Blockchain an event tracking system where announcements indicate events and events can be actionable.
Blockchain may also be used as a workflow platform by putting rules around occurrences using Smart Contracts. For a client app to communicate with a Smart Contract, the user or the application from which the user is invoking contract functionality must know the contract’s public address.
Ethereum and Hyperledger Fabric are two of the most developed and frequently utilized Blockchain systems. Although both Ethereum and Hyperledger Fabric were released in 2015, their out-of-the-box functionality is vastly different. For the construction of Smart Contracts and native tokenization, Ethereum comes with an open, public, permissionless blockchain and a Turing complete programming language called Solidity out of the box. Hyperledger Fabric comes with a closed, private, permissioned blockchain out of the box, as well as Turing complete programming language support in Go, JAVA, and JavaScript for Chaincode development (Smart Contracts).
Blockchain Consensus
In Blockchain, all transactions are recorded in blocks. Before a block can be added to the chain of previously validated blocks, it must first be validated by group consensus. There are a variety of Blockchain consensus techniques, however regardless of the type of consensus utilized, every transaction data on a chained block is considered to be trustworthy, and the chained data has not been altered owing to group consensus data validation. There are two main consensus mechanisms named, Proof of Work and Proof of Stake.
Proof of Work (PoW) Consensus
Byzantine Fault Tolerance was achieved in Bitcoin via a Proof of Work validation system. When a block of data is full, each node competes to solve a guessing game problem to validate the block of data using Proof of Work consensus. Because this is a non-computational problem, the most efficient solution is to make random guesses. Miners are nodes that must estimate the “nonce” to successfully validate a block. All block data, as well as the current guess (nonce), is sent through a cryptographic hash; if the result matches the current level of “difficulty,” the miner has guessed correctly. The network adjusts the difficulty to match the load.
A nonce is a piece of random data that is mixed with block data to produce a hash output that matches the Blockchain’s current difficulty level. Any miner who believes they have the proper answer will inform the rest of the community. Miners will use the nonce with their block data to try to get a result that fits the difficulty setting to validate the solution is right. The transactions on the winner’s block are judged right if 51% or more of the miners agree with the proposed nonce, and the miner with the correct answer is paid (usually the reward is given in platform tokens). Any nodes that lack the right block data will reconcile by copying the validated block from nearby nodes. Proof of Work consensus offers a game theory incentive for each node to act precisely and honestly; dishonest players will incur real-world costs in guessing the nonce for a 0% chance of receiving a payout.
Proof of Stake (PoS) Consensus
Proof of Stake is a newer Blockchain consensus technique that has been proposed as a replacement for Proof of Work to address the scalability and cost issues that PoW has. Because Proof of Stake eliminates the guessing game in block validation, mining no longer necessitates sophisticated and specialized gear, requiring less energy for processing.
To validate transactions, Proof of Stake consensus uses a mechanism in which “Validator” nodes individually donate or pay a stake. When it is time for collective consensus, everyone who wants to take part puts money at a stake. A random node is chosen, and all other participants are shown the hash of that node’s block contents. The validity of the block transactions is staked by all other nodes. If the proposed block is approved by the majority, the random node gets rewarded, as are any bettors on that node. If a majority of nodes disagree, the random node loses their stake, receives no reward, and a new node is chosen at random to share the block data. Only the mechanics of how it is enforced are changed, but the game theory motivation for honesty and accuracy remains.
The main difference with this consensus is that no processing is done during it; instead, only wagering is done, and any device, regardless of computing power, can wager. The Nothing at Stake dilemma, in which a validator node authorizes all transactions on both sides of a ledger following a hard fork, is one potential vulnerability of Proof of Stake.
Proof of Work vs Proof of Stake
Smart Contracts
Smart Contracts are a technique of embedding rules and decision points into Blockchain transactions and processes. In traditional programming terminology, a Smart Contract can be thought of as a class for individuals with a development background. Smart Contracts are immediately published to the Blockchain and allow for the automation of transactions while ensuring that they all follow the same set of rules. On the Blockchain, each Smart Contract and the transactions it conducts are stored as records or transactions. As a result, Smart Contracts exist on the Blockchain as permanent entities — something to keep in mind when considering a Smart Contract as a solution component.
Smart Contracts provide:
· Autonomy: Smart Contracts may be produced by anybody; there is no need for middlemen like attorneys, brokers, or auditors.
· Efficiency: Removing process intermediaries frequently leads to large process efficiency improvements.
· Cost Savings: Replacing intermediaries frequently results in significant cost savings.
· Backup: A Blockchain and Smart Contract placed on it can give a permanent record, allowing for auditing, insight, and traceability even if the developer is no longer in business.
· Accuracy: By replacing human middlemen with executable code, the process is guaranteed to be consistent.
Blockchain vs Database
When determining which technology to deploy and whether Blockchain is the correct fit or not, there are numerous aspects to consider. The location of your solution’s data is an important aspect of any solution. Traditional systems now rely on database technology that has been refined over many years.
When considering Blockchain as a solution, a traditional database system will be a better fit than Blockchain in the following situations:
1) High-security data
2) It is critical to perform well
3) No requirement for history, simply a snapshot of data
4) Ease of maintenance
5) Application logic expected to change regularly
6) Maintaining centralized management of resources is critical
When the following conditions apply, blockchain will be a better fit than a traditional database system:
1) Transparency and public validation are required
2) Extreme fault tolerance is required
3) Infinite scalability is required
4) Data cannot or should not be entrusted to a single authority.
“Blockchain is moving beyond cryptocurrency, and it is worth paying attention — especially since successful prototypes show that blockchain, also known as distributed ledger technology, will be transformative.”- Julie Sweet
Continue to construct.
References
1. Ian Khan. (2019, May 10). Blockchain City — The Future of Cities Driven by Blockchain. Retrieved from Youtube: https://www.youtube.com/watch?v=I6fadL-0VRw
2. Konstantopoulos, G. (2017, December 1). Understanding Blockchain Fundamentals, Part 1: Byzantine Fault Tolerance. Retrieved from Medium: https://medium.com/loom-network/understanding-blockchain-fundamentals-part-1-byzantine-fault-tolerance-245f46fe8419
3. Malhotra, S. (2018, August 15). Beginner’s Guide to Blockchain — Explaining it to a 5 Year Old. Retrieved from Medium: https://medium.com/@_sidharth_m_/beginners-guide-to-blockchain-explaining-it-to-a-5-years-old-772caac6ae97
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