Hello!! Let me put up my thoughts and give an intro to the blockchain. Instead, going in direction of what? how? why? Let me go in reverse. First, we try to understand why we need blockchain, and then let's see how it works. From that, I will let you devise your own definition of what blockchain is.
Before starting, I just want to put a big disclaimer that, whatever I have written here is my own perspective on whatever I have learned or heard from different resources on the internet. Feedbacks or critics are always welcome
Why do we need Blockchain?
Trust
Earlier(I mean till 2008) we need to trust a bank to save our money or to transact our money. How do we establish this trust? Over a period of time banks proved that it is doing the right thing what we expected them to do and with that reputation, we are trusting the banks. But are we sure that banks do well always, going forward? Are we sure that our transactions have not been tampered with? Are we sure that the bank has manageable debt? Not sure!! As we all know the histories!!
With the help of blockchain, we can eliminate the trust in a single entity, but the trust is on a fault-tolerant blockchain network in which all the transaction has owners signature and also no one can mutate the transactions
Peer-to-peer
In the Peer-to-peer system, transactions happen between one node to another node without any intermediaries. Following are examples of what we are thinking it’s peer to peer but it’s not.
If Alice what to transfer money to Bob, it cannot be done directly between them. It can only be done with help of banks in between. If we want to buy or rent a house there is a broker in between. If we want to buy an apple there is a dealer in between, we cant get it directly from the farm.
With blockchain, transactions can happen peer-to-peer without any intermediaries.
Globalization
Globalization is a term used to describe how trade and technology have made the world a more connected and interdependent place. With the current globalization we achieved, still, I could not use the Indian rupee anywhere except in India. The same applies to all country’s currencies.
With cryptocurrency(one of the applications of blockchain), we can transact anywhere in the world where we have an internet connection.
Censorship
The private entity or a government has the authority to censor anything which they feel is offensive. we as a consumer may or may not have the right to question that, as we all know “Terms and conditions apply”.
Blockchain is censorship-resistant and no single entity can make a decision.
Decentralization
Is it a good idea to let a single entity own all our data? It would be good if we own our data, right? Blockchain comes to rescue us.
With help of blockchain, we can decentralize our resources across the world. The beauty is even if one node survived any disaster, the blockchain can be operated from that point and spread across the world. So it's decentralized and also fault-tolerant. It's a win-win!!
Ownership
Is it possible to own our own content that we are posting on social media? With blockchain, it's very much possible to own our content in the form of NFT. Beauty is you can even transfer your ownership.
How does it work?
Let's understand some of the key terms and put up everything in a story at the end
Public and private keys
A private key is a random number that should be kept secret by the owner. The public key will be derived from the private key and it cannot be reversed which can be shared with the public. Try it out here.
Signing
Signing is the process of adding our signature to our data with help of our private key. The signature can be verified by anyone who has our public key. Try it out here.
Hash
Hash is something we get as a result of hashing. What is hashing then? Hashing is a cryptographic technique in which we can feed in our data and get a fixed-length output that cannot be reversed back to data. Try it out here.
Block
Block is a container that contains a set of transactions, nonce, timestamp, and a hash of the previous block as a bare minimum, and based on the implementation of different blockchains, the data stored in blocks can vary.
Consensus algorithm
A consensus algorithm is a predefined algorithm by which everyone in the Blockchain network reaches a common agreement about the present state of the Blockchain. The consensus algorithm makes sure that every new block that is added to the Blockchain is the one and only version of the truth that is agreed upon by all the nodes in the Blockchain.
Mining
Mining in blockchain means verifying all the transaction in a block and adding it to the blockchain. How to mine a block? We need to hash the block’s data to get a value less than some predefined value that the network agreed upon. Believe me, it's not that easy. To mine a bitcoin it needs 143,000 kWh energy which is enough to run a laptop for more than 3000 years.
Note: Mining is specific to blockchain which follows the Proof of Work(POW) consensus algorithm
Now let's discuss the whole story of blockchain. When any transaction happens between Alice and Bob, the person who initiated the transaction will sign the transaction data and publish it to the blockchain network. The transaction could be anything like a money transfer, ownership transfer, or any state change. Since the transactions are signed by the owner with their private key, that transaction cannot tamper with. The signature can be verified by anyone with the owner’s public key.
The miners who are responsible for mining the block will include this transaction by verifying the signature with the owner’s public key along with a set of transactions in a block and mine the block to add it to the chain. Miners will get rewards in the form of cryptocurrency. This incentive to miners will help blockchain keeps moving in a more secure way.
Each blockchain will have its own block time interval defined and each block will get added at this time interval. What happens when a miner who is having more hash power keeps on adding a block within the block time? As we all know blockchain doesn’t like centralization, blockchain will adjust the difficulty of mining based on how fast the blocks are getting added so that no single miner can take advantage and also this defines the security of the blockchain.
One more main feature of blockchain is that each block will have the hash of the previous block and that’s how the chain grows. So if anyone tries to tamper with the data in one block in between the chain, then he has to mine further blocks again and during the same time chain also grows, so it's not impossible to hack the chain but the cost of hacking is more than the incentive.
Based on application and implementation, different blockchains behave in their own way.
Some of the interesting use cases of blockchain
As we already touched upon the use case like cryptocurrency, NFT, let's discuss other interesting use cases here,
- Supply chain monitoring — If we store all the records of how products are getting transferred from Manufacturer to retailer or consumer in blockchain, we can make sure the authentic original product is delivered to the consumer. Everledger is one of the solution providers.
- Data storage — Blockchain allows us to store our data in a decentralized way instead of storing it in third-party cloud storage. If we have some hard drive space to spare we can also contribute to the data storage and earn incentives. Check out sia network and filecoin.
- Web hosting — Blockchain allows us to host our static web app in a decentralized way so that our app is always up and running. Check out shift and skynet.
- VPN — Instead of relying on a single server to provide a VPN(Virtual Private Network) solution, we decentralize it and each and every one of us whoever has an internet connection can provide a VPN solution and also get an incentive for that. Check out Mysterium network.
There are a lot of other use cases like decentralized DNS, decentralized finance(DEFI), Decentralized Autonomous Organisation(DAO), Digital voting, etc., I don't want to drag more here, Please check it out in your own interest.
Now let's come to “What is Blockchain?”
I found a few definitions while googling. If I want to define it as a normie then,
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.
If I want to define it as a techie then,
Blockchain is a growing list of records, called blocks, that are linked together using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
But whatever I have discussed till now will give a basic building block and understanding of blockchain in a generic way. So, with that, you can define your own definition of blockchain.
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