Understanding the Basics of Blockchain
Blockchain, bitcoin, cryptocurrency, altcoin, decentralized markets — there are so many ways people are talking about and understanding this budding industry. However, sometimes it does not hurt to go back to the very first node and remember what the basics mean. So whether you are here for a refresher course or just trying to come to grasp the whole world of crypto, here is our essential basics of the blockchain in 2018.
What is Blockchain?
Essentially a blockchain is an open source distributed ledger, where information can be recorded and confirmed by participants in “blocks” that are connected in a “chain” of information.
Ownership of individual “blocks” of information (whether they be digital coins, property rights or data) is recorded on an immutable ledger that everyone on the network can see.
Each block contains data, the hash of the block, and the hash of the previous block.
The data that is stored on the block depends on the type of blockchain — and what the utilization will be. Bitcoin, a cryptocurrency, stores data about the currency transactions, such as the sender, receiver, and the number of coins.
Some important notes:
Hash: It can be considered as a fingerprint. It identifies a block and all of its contents and its always unique.
Hash of the previous block: This creates the chain of blocks, and it is this element that makes the blockchain so secure. When you alter the data in the block, the hash will change, making all of the following blocks invalid.
Proof of Work (PoW): is a mechanism whereby servers solve complex mathematical problems to generate a new sequence of letters and numbers that form a block in the blockchain.
What we mean when we talk about decentralized
Another aspect of security is the fact that the blockchain is decentralized. Instead of using a central entity to manage the chain, blockchain uses a peer to peer network that everyone can join.
When someone joins, he or she gets a full copy of the blockchain.
To successfully tamper with a blockchain, you’ll need to tamper with all the blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the peer to peer network. Only then will the tampered block become accepted by everyone else.
“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.” — Leon Luow, Nobel Peace Prize nominee
How can Blockchain be applied to everyday scenarios?
Critics all too often view blockchain as a solution in search of a problem. It is true it doesn’t enable people to do anything they can’t do already; however it does allow people to complete transactions and recordings much more quickly with less friction and lower costs.
All kinds of Business transactions take place every second of every day — orders, payments, account tracking and much more. Often, each participant has his or her ledger — and, thus, a version of the truth that may differ from other participants. These multiple ledgers can be a recipe for error, fraud, and inefficiency. However, because members on a blockchain share a common view of the truth, it’s now possible to see all details of a transaction end-to-end, reducing those vulnerabilities.
Ordinary transactions are complex.
• Each participant has his own, separate ledger — increasing the possibility of human error or fraud
• Reliance on intermediaries for validation creates inefficiencies
• Can become a paper-laden process, resulting in frequent delays and potential losses for all stakeholders
Blockchain reduces that complexity.
• Single, shared, tamper-evident ledger — once recorded, transactions cannot be altered
• All parties must give consensus before a new transaction is added to the network
• Eliminates or reduces paper processes, speeding up transaction times and increasing efficiencies
The blockchain is a disruptive technology because of its ability to digitize, decentralize, secure and incentivize the validation of transactions.
Almost everything we do can be considered a transaction of some sort — allowing for this technology to be implemented in a wide variety of industries.
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