Exploring the Fundamentals of Decentralized Networks.
What is Blockchain?
Definition: Blockchain is a collective, unchangeable record-keeping system that supports the task of documenting deals and monitoring resources within a business network.
Example: “Imagine a register that keeps track of transactions. Now, imagine this register being copied across multiple computers in a network. Each transaction recorded is called a “block,” and these blocks are connected, creating a “chain” of blocks. This entire structure is known as the blockchain.“
How Does Blockchain Work?
Join me in examining how blockchain functions by utilizing a register to document transactions.
- Decentralization:
Traditional Register:
Before blockchain setup, an individual (such as a bank clerk) is responsible for managing a register that documents transactions.
This individual possesses complete authority over the ledger, and everyone relies on it to ensure its accuracy.
Blockchain setup:
In a blockchain, the register is maintained by every participant in the network, not just one person. This decentralized approach ensures that no single entity controls the register, allowing for transparency and trust as each participant can view every transaction.
- Transaction and Blocks:
Traditional register:
The bank clerk records your transactions in the register. Once multiple transactions are made, the register could fill up a page.
Blockchain register:
Every transaction on a blockchain, such as a payment, is documented in a “block.”
Once there are sufficient transactions listed, the block is deemed full.
To create a continuous record of transactions, this block is then appended to the chain of earlier blocks.
We can understand with an example like, if you pay $10 to your friend, this transaction is stored in one block after many transactions. When the block is full, this block is going to connect with a chain of the previous block and make a new block.
- Security:
Traditional register:
By having access to the register, individuals can easily erase or modify transactions, making the traditional system susceptible to fraudulent activities. This is a serious safety concern.
Blockchain register:
In a blockchain, every block holds a distinct code known as a “hash” along with the hash of the preceding block. If an attempt is made to modify a transaction within a block, the hash of that block will be changed, subsequently impacting all other blocks.
This will trigger a notification to all network participants that the register has been tampered with, rendering it highly challenging to manipulate previous transactions.
- Fixity:
Traditional register:
In the traditional register setup, when one page is full, the clerk can easily move to the second page and still have the option to go back to the previous page and make any necessary changes.
“Blockchain technology is not just a new way of doing things; it’s a new way of thinking about trust.“
– Gavin Wood (co-founder of Ethereum)
Blockchain register:
But in blockchain, if a block is full and attached to the chain, then it sets it permanently.
So, we can not change previous transaction history, which gives us integrity and security that our transaction is secure and as it is.
- Agreement protocol:
Traditional register:
The bank clerk in the traditional system determines the timing of recording transactions and updating the register. Assuming the clerk is trustworthy, it is believed that the register is correct.
Blockchain register:
In a blockchain, the decision to add a block to the ledger is not made by a single individual. Rather, the entire network must reach a consensus that all transactions within the block are legitimate. This process of reaching an agreement is referred to as a “consensus mechanism.”
Example: There are many examples in which Proof of Work (PoW), Proof of Stake ( PoS ), proof of authority, etc.
Let’s take an example of Proof of work ( PoW ) in Bitcoin: in the Bitcoin blockchain, miners compete to solve a complex mathematical problem (Proof of Work) to validate the block.
Once validated, the block is added to the blockchain, and all participants update their registers.
Why is Blockchain important?
As we see how the blockchain works, the same points are for why it is important.
- Decentralization:
Blockchain technology removes the necessity of a central authority or intermediary, like banks or government institutions, in overseeing and authenticating transactions. This decentralization gives individuals and businesses the ability to engage directly, decreasing dependence on third parties.
- Security:
As we talked about before, you can not go back and change transaction value or something. After a transaction is documented in a block and incorporated into the blockchain, it becomes nearly impossible to change or remove. This unchangeability safeguards against deceit, cyberattacks, and manipulation of data.
- Automation with Smart Contracts:
Blockchain technology allows for the development of smart contracts, which are contracts that self-execute based on pre-defined conditions written in code. By eliminating the need for intermediaries, these contracts improve efficiency and enforce themselves automatically. Some many reasons and facilities are provided by blockchain that make it important.
Practical Uses:
- Cryptocurrency:
Bitcoin and other cryptocurrencies utilize blockchain technology to document every transaction. Each transaction functions as a unique entry in the register, and due to the decentralized nature of the register, it remains beyond the control of any single entity, such as a traditional bank.
- HealthCare:
In healthcare, blockchain can securely store patient records. Just like our register, once a record is added, it can’t be altered, ensuring that medical histories are accurate and tamper-proof.
- Voting Systems:
A voting system built on blockchain technology could maintain a transparent and secure record of votes. Each vote would be treated as a transaction within a block, making it extremely difficult to change or manipulate the election outcomes.
If you want to start with Blockchain, How can you do that?
First of all, learn the basics: Identify yourself with Blockchain and learn that from any resource, online or offline.
Second: Generate a small quantity of digital currency such as Bitcoin or Ethereum to understand the process of transactions.
Third: Explore real-world projects: See different blockchain projects and learn how they are applied to different industries or companies.
Fourth: Become a part of a community: Be a part of a well-known community and also attend events and meetups.
Conclusion:
The concepts of efficiency, transparency, and data security are being revolutionized by blockchain technology.
Understanding its fundamental ideas can lead to new opportunities and provide insights into the direction that technology is taking, even though it may initially seem complicated.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.“
– Andreas M. Antonopoulos (Blockchain and cryptocurrency expert)
Blockchain is undoubtedly worth investigating because it has the potential to completely transform several industries.
