Exploring the Bits of Blockchain Technology

Have you ever wondered that something called Blockchain would become a hot topic among your colleagues and friends? You may know a bit and might have heard a bit about this. But still, can you talk confidently about Blockchain Technology? This article is specifically for anyone with an interest to learn Blockchain fundamentals in the simplest manner.

Today, we see a new digitalized era and we are almost approaching the Blockchain era where everything in this world will be a part of Blockchain Technology. So, learning and exploring this world will make you an outstanding person whenever you speak to your business partners, whenever you talk to your colleagues or when you speak during an interview. Having said that, this is going to be a disruptive change with unimaginably high potential to change our lifestyles in the near future!

Blockchain Dictionary

Before we get started, let’s have a look at the terms used in Blockchain technology so as to understand the concepts further.

1. Cryptography — Cryptography involves creating written or generated codes that allow information to be kept secured.
2. Cryptocurrency — The first cryptocurrency to begin the operation was Bitcoin, introduced in 2009, after Satoshi Nakamoto established the basis for Blockchain Technology.
3. Bitcoin — Bitcoin is a decentralized currency, meaning it is not supervised by any authority or institution.
4. Token — Units of value that can be acquired through Blockchain (E.g. Utility Token and Security Token).
5. Ethereum — An open-source, public, Blockchain-based distributed computing platform.
6. Miners and Digital mining — Mining is the process through which new Bitcoins are launched onto the market.
7. Nodes — The nodes are the computers that form part of the Blockchain network.
8. E-Wallet — Digital wallet that allows users to manage Bitcoin and Ether.
9. Smart Contracts — A computer code running on top of a Blockchain containing a set of rules for the involved parties to automatically exchange Bitcoins.
10. Hash — A hash is a function that converts an input of letters and numbers using an algorithm into an encrypted output of a fixed length.
11. Double-Spending — Malicious user tries to spend their bitcoins to two different recipients at the same time.

What is Blockchain?

A block is a record in the blockchain that contains and confirms many waiting transactions. Roughly every 10 minutes, on average, a new block including transactions is appended to the blockchain through a process called mining. The blockchain is a public record of Cryptocurrencies like Bitcoin transactions in chronological order. The blockchain is shared between all cryptocurrency users. It is used to verify the permanence of Bitcoin transactions and to prevent double spending.

Key concepts of Blockchain

Secured using Cryptography

Cryptography is the method of disguising and revealing (otherwise known as encrypting and decrypting) information through complex mathematics. This means that the information can only be viewed by the intended recipients and nobody else.

Not Controlled by a Central Authority

• Blockchain overrides the need for a central authority by distributing information previously held in a centralized ledger across a network of computers.
• In this way, not one person or organization owns the Blockchain rather, anyone with an internet connection (and access, in the case of private Blockchains) can make use of it and help maintain and verify it.

Access to Anyone on the Network

A Blockchain can be built and accessed in multiple ways. For instance, Bitcoin, the most popular cryptocurrency in Blockchain which allows anyone to participate in the network in the capacity of a full node, or a contributing miner. Anyone can take a read-only role, or make legit changes to the Blockchain like adding a new block. Such Blockchains allow equal and open rights and access to all participants on the network.

Everyone has copies of the data

The Blockchain is an open and distributed ledger. It uses an append-only data structure, meaning new transactions and data can be added on to a Blockchain, but past data cannot be erased. This results in a verifiable and permanent record of data and transactions between different parties. This has the potential to increase transparency and accountability, and positively enhance our social and economic systems.

How Blockchain Works?

• Distributed Ledger
• Block Data & Hash Function
• Proof of Work
• Mining

Distributed Ledger — It enables a community of users to record transactions in a ledger (public to that community) such that no transaction can be changed once published.

Block Data & Hash Function — The Blockchain only contains validated transactions, which prevents fraudulent transactions and double spending of the currency. The validation process relies on data being encrypted using algorithmic hashing. The resulting encrypted value is a series of numbers and letters that does not resemble the original data, and is called a hash.

Proof of work — Proof of work is a mechanism that slows down the creation of new blocks. It takes around 10 minutes to calculate the required proof of work and to add a new block to the chain. You will have to calculate the proof of work for all the blocks if anyone tries to tamper the blocks. So, this security makes it more difficult to tamper with blocks ensuring a secured chain. This responsibility bears on special nodes called miners.

Mining — Blockchain mining involves adding transactions to the existing blockchain ledger of transactions distributed among all users of a blockchain. Currently, a miner is paid 6.25 Bitcoins for adding a block. The reward of the miner reduces every 4 years!

Mining Software:

These are the few softwares which are used currently for the Bitcoin mining process:

• CGMiner
• MultiMiner
• BFGMiner
• BitMinter
• Miner-Server

Why is Blockchain Revolutionary?

The technology can work for almost every type of transaction involving value, including money, goods and property. Its potential uses are almost limitless: from collecting taxes to enabling migrants to send money back to family in countries where banking is nearly difficult. Blockchain could also help to reduce fraud because every transaction would be recorded and distributed on a public ledger for anyone to see.

1. Greater transparency — Since blockchain is a type of distributed ledger, all network participants share the same documentation as opposed to individual copies.
2. Enhanced security — Transactions must be agreed upon before they are recorded.
3. Improvised traceability — An audit trail that shows where an asset came from and every stop it made on its journey.
4. Reduced costs — No need of third parties or middlemen to make guarantees.

Bitcoin Legality Around the World

Below is an image which shows at what places Bitcoin is legal, neutral, restricted or illegal:

Limitations of Blockchain Technology

Any Blockchain network largely depends on the amount of active users within it. In order to operate to its full potential, a network has to be a robust one with a widely distributed grid of nodes. Moreover, there is no Blockchain network in existence that could sustain the same amount of transactions as major card issuers like Visa or MasterCard do. As of 2019, Blockchain still has a very long way to go before it will be capable of replacing the giants of the financial world. Finally, there is always a theoretical possibility of a large-scale capture of any given Blockchain network. If a single organization will somehow manage to gain control of the majority of the network’s nodes, it will no longer be decentralized in the full sense of the word.

Blockchain has an Environmental Cost — At least, the way it is being used today, it does have an environmental cost. Blockchain relies on encryption to provide its security as well as establish consensus over a distributed network. This essentially means that, in order to “prove” that a user has permission to write to the chain, complex algorithms must be run, which in turn requires large amount of computing power to keep the network running thereby consuming much more energy.

Lack of Regulation Creates a Risky Environment — Again, this is largely a problem with Bitcoin or other value-based blockchain networks. But the fact is, as many people investing in Bitcoin or other cryptocurrencies for the first time in the last few months have found to their cost, it’s a very volatile environment. Due to the lack of regulatory oversight, scams and market manipulation are common. Among the high profile cases is Oncecoin — recently revealed as a ponzi scheme which is believed to have robbed millions from investors who believed they were getting in early on what would become the “next Bitcoin”.

Blockchain can be slow — Once again due to their complexity and their encrypted methodologies, distributed nature, blockchain transactions can take a while to process, certainly compared to “traditional” payment systems such as cash or debit cards.

Opportunities of Blockchain Technology

1. High Paying Jobs

2. Faster Growing Skills and High Demand Growth

3. Disruption to value chain — Blockchain will add significant value improving confidence between parties, reducing friction in the value chain.

4. Varied Industries

By now, you must be having a strong knowledge about the fundamentals of Blockchain Technology such as key concepts, Cryptocurrencies & Bitcoins, key terminology, hashing, mining etc. So, that is it from my side. Thanks for reading. Have a good day!