EVERYTHING YOU NEED TO KNOW ABOUT BLOCKCHAIN!
In order to use MarsDAO products in a way not just convenient, but also beneficial in the sense of saving money, preserving anonymity, and favorable conversion of funds, it is necessary to understand the basics of the technologies that these products and services support. At the heart of it all is blockchain technology.
Blockchain is a revolutionary technology that has the potential to completely upend existing business models. In recent years, blockchain has been both praised and feared by governments, financial institutions and the media, among others.
Some believe that the invention of blockchain will have an even greater impact on humanity than the invention of the internet. Blockchain is also referred to as the “fifth revolution of computer science.” Blockchain is seen as a system that can fill an important gap in the Internet; it has the potential to create a “World Wide Web” in which all users can make secure transactions in a zero-trust environment.
This article explains the principles of blockchain. What are blockchains and how do they work? What well-known examples of blockchain implementations exist and why is blockchain causing such a big stir? Find out in this MarsDAO article.
What are blockchains?
It is important to understand the basics of blockchain. How does blockchain create trust between users on the Internet? What is new about this technology?
With blockchain, various transactions can be facilitated securely. A blockchain network is a network of participants who control each other. There is no central party or intermediary in this network, which is an innovative aspect of this technology. It is a decentralized database that functions like an online registry. However, there are also blockchains that work a little differently.
A blockchain is a continuous, sequential chain of blocks containing information. The blocks with information are shared by a network of separate independent parties. Transactions are stored on the blockchain without being deleted or altered. A network of computers is decentralized and stores this chain of blocks.
How do blockchains work?
The technology is only as complex as we make it out to be. It’s pretty simple when you break it down. However, the modern version of blockchain is indeed a technological victory. A victory that will define our future in many ways.
It’s not just one file stored in a centralized repository that many people use. In fact, there are thousands of copies of that file stored on computers around the world, both on home computers and on corporate servers — hence the term “decentralized.” This file can be used to record many things, but below we’ll use sending and receiving money as an example, because that’s the most common at the moment:
Peter wants to send money to Mike. To do this, a new section is created with the specifications of their transaction. This partition is then sent to hundreds of other computers that have a copy of the document. These computers confirm that this transaction is authorized, and ultimately agree (or disagree) that everything about the transaction is legitimate.
It’s as if there were several hundred friends standing around Peter and Mike who saw Peter handing Mike his money. They all agree that he is indeed giving him money, but they also agree on other aspects of the transaction, such as whether the correct amount was specified.
Traditional databases and blockchains
In our daily lives, we are constantly dealing with registers, bookkeeping and important data. In the past, this information was neatly written down in a thick book, but nowadays, digital databases are preferred for storing information. Since it is undesirable that everyone can simply view and change all the information, these databases are usually managed by one party. Fundamentally, this party is trusted by everyone. The owner of the database has absolute power and therefore the ability to change or delete information without anyone else’s knowledge.
Blockchain is different from a traditional digital database. Information in a blockchain is not in the hands of a single controlling party, but rather a large number of different parties that are connected to the blockchain network. Each party in the network owns the entire ledger (transaction register), but at the same time no one owns it separately because all information belongs to the network, which owns all information in a decentralized and equal manner. Blockchain is managed by many people at the same time. Each party in the network is not connected to a database, but to each other. This is called a peer-to-peer (P2P) network, a network of equitable computers, each capable of replacing the other. There is no hierarchy in such a network, i.e. they are equal.
- Central database or centralized database
The moment a central database is lost or corrupted, affiliated parties can no longer access the correct information they need. This can lead to problems and is a risk.
- Blockchain or decentralized database
In a blockchain network, each party owns information. When one party disappears, the others continue to exist. More than one party owns the information, which is much safer.
Transactions
Blockchain transactions are carried out through a sophisticated process that ensures security, transparency and efficiency. When a transaction occurs on a blockchain network, it involves the direct transfer of digital assets from one participant to another, eliminating the need for intermediaries such as banks.
Conceptually, transactions are organized into blocks, forming a chain-like structure commonly referred to as a blockchain. Each block contains a unique cryptographic hash, which serves as a digital fingerprint that guarantees the integrity and authenticity of the data it contains. In addition, this hash incorporates information from the previous block to ensure that the entire chain is firmly linked and unchanged.
Once a block is created, it is distributed across a decentralized network of computer systems called nodes. Using the power of consensus algorithms, these nodes collaboratively validate and verify transactions in the blockchain. This decentralized nature eliminates dependence on a central authority and ensures the reliability of the network.
Once consensus is reached, the confirmed block is added to the existing blockchain, becoming an immutable part of the ledger. The irreversible nature of such additions provides strong transaction security. Any attempt to tamper with the block would require significant computational resources and would be quickly detected by a vigilant network.
Block + chain
As you can see, a blockchain is what it is — a chain of blocks. A block is a list of completed transactions, the data that is stored. The number of transactions in a block can be different for each blockchain.
For example, the Bitcoin network does not store the number of Bitcoins someone owns for each account, but only the completed transactions. However, this makes it easy to calculate how many Bitcoins someone has: the number of incoming Bitcoins minus the number of outgoing Bitcoins.
Each block in the chain is linked to the previous block, thus creating a train of transactions. This is the “chain” of the blockchain. Linking the transactions together creates the actual database. Each block is then encrypted using a hashing algorithm, and each participant then receives a complete copy of the blockchain.
Blockchain technology ensures that transactions cannot be altered or deleted. This makes blockchain technology virtually impossible to commit fraud.
Different types of blockchain
Blockchain is decentralized and public; the blockchains previously described are based on a publicly available system. However, there are two other variants of blockchain: private blockchain and consortium blockchain.
- Public blockchain:
The public blockchain is the best known and most widely used. Public blockchains are often decentralized and open source, so a public blockchain follows the principle of a “distributed ledger”. Anyone can participate in the network, and everyone has the ability to view the code with which the blockchain is written. Anyone can send transactions within a given blockchain and can assume that those transactions will be included in the blockchain. Because more people are typically connected to a public blockchain than a private or consortium blockchain, public blockchains are often more secure.
We mentioned earlier that it would take a person more than 50 percent of the processing power of a blockchain network to make malicious changes. The more people connected, the higher the legitimate computing power of the blockchain network. An attacker, for example, requires much more computing power. An example of a public blockchain is the Bitcoin network.
- Private blockchain:
A private blockchain is the exact opposite of a public blockchain. As the name implies, a private blockchain is a closed system. Not everyone can join the network. The right to add information is limited to a select group. A private blockchain has an owner who determines who has access to the blockchain. Because the way data is stored is still a chain of transactions and there are multiple related parties, it is still called a blockchain, but it is not completely decentralized.
The most common examples of private blockchains are Ripple (XRP) and Hyperledger Fabric. The Ripple network, while decentralized, is owned and operated by a private company of the same name. A blockchain network accessible only to company employees is also an example of a private blockchain.
- Consortium Blockchain:
Consortium blockchain stands between public and private blockchain. It is also called a hybrid blockchain. A consortium is a partnership between different parties such as banks or companies. A consortium blockchain is a blockchain created as part of the partnership. The blockchain is not public, but it has multiple owners. Sometimes the consortium blockchain can be viewed by anyone, but not everyone has the ability to change the data.
Examples of consortium blockchains are Quorum and Corda. Quorum is an Ethereum-based enterprise distributed ledger platform that was designed to provide financial industry participants with a permissioned implementation of Ethereum that supports transaction privacy and smart contracts.
The future
Blockchain is an “open” technology that can be used for many different purposes. This means that anyone who owns the technology can create their own blockchain database for their own app. You define the so-called protocol yourself.
One of the benefits of blockchain is that it can replace paper contracts and documentation with secure and smart electronic documents. This can make many processes more efficient.
A few examples:
- Cryptocurrency: the most prominent blockchain application. Bitcoin, in particular, is often mentioned in the news. But there are already thousands of different cryptocurrencies. Each one has its own version of a blockchain database, in which the intervention of a financial institution is not required. This makes the process much more efficient. International payments that would normally take days and sometimes weeks are now made within 10 minutes or even faster — sometimes in seconds.
- Healthcare: so-called smart contracts can record agreements between, for example, a health insurer and a customer. Insurers can use this in the future. Once you receive care, you can send data about it to your smart contract, which will determine whether it is an insurable event or not. If it is, the service will be automatically reimbursed. This way, the insurer will get rid of time-consuming procedures.
- Medical data: patient data from hospital laboratories are often still mailed to other hospitals and then manually entered into a computer. An expensive, error-prone and slow process. With blockchain technology, it can be faster, cheaper, and errors are virtually eliminated.
- Copyright: composers and songwriters can also store rights in a blockchain database. In this way, they can be automatically compensated every time someone uses it. A copyright intermediary would then be unnecessary.
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