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Blockchain Tutorial
Last updated on Dec Fri, 2022 {' '} 1584
What is Blockchain?
Blockchain is basically a kind of digital ledger that helps in maintaining transactional records. The information is stored in regular batches which are known as blocks and they are linked in a chronological way together to configure a continuous chain of blocks known as the blockchain.
The changes that a user makes in the information that is stored in a particular block cannot be rewritten. However, the change in information gets stored as a new block. Blockchain is considered secure as powerful cryptography is used which provides sole address ownership to the user along with the crypto assets which are related to them. The crypto is designed as a combination of both public as well as private keys and they are created using a combination of numbers and letters. Therefore, this helps from the identity thrift when the address is not directly linked with the identity of the user.
History of Blockchain
The technology of blockchain was described by the scientist W. Scott Stornetta and Stuart Haber in the year 1991. Both these scientists were looking for a practical solution to time-stamp the digital documents hence the documents are not tampered with or backdated.
Various applications have grown which were underlining the actual impact they could have posed in the world on the digital economy has now heated up since blockchain started gaining popularity only a few years back.
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How does blockchain work?
We must have noticed in recent years that a lot of businesses have started integrating worldwide with the help of Blockchain technology. But this still leaves us with the question of how exactly this works? Has this been a significant change or it was just a simple addition to pre-existing technologies? The upcoming blockchain is very young and it has the possibility to create a revolution in the future.
Blockchain is known to be a combination of 3 top-leading technologies which are:
- Peer-to-peer network containing a shared ledger
- Cryptographic keys
- Computing technology that stores the records and transactions of the network
Cryptography mainly consists of two types of keys which are a public key and a private key. Both these keys help the user in executing the transactions between two parties. Each user can have the two above-mentioned keys and these keys can be used to design a digital identity reference that is secure. The most important aspect of blockchain technology is this secured identity created. We can also call this secure identity a ‘digital signature’ in the cryptocurrency world. A party can use this digital signature to authorise and control the transactions.
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Blockchain Architecture
Following are the constitutes of a blockchain architecture:
Blocks: As we have already discussed above, blocks are a type of dataset which store important information in the form of a ‘block header’. This block header helps the user to verify its neighbourhood. We can define this information stored inside as:
- A version of the block
- The version of the parent block
- The time that is taken for the block creation
- nBits
- Encrypted hash for all the transactions
The rest of the block comprises transactions that are set during the time of data mining. There are different blocks present according to their functionalities in the blockchain architecture. They are described as follows:
Orphan Blocks: These are not known to the node, basically the parent block.
Side Blocks: These are described as those parent blocks which are absent in the current blockchain.
Main Blocks: This block extends the current blockchain to the user.
Transactions : Transactions contain the address of the sender, the recipient, and also of the respective values. Transactions are collated and then sent to all the nodes present in the blocks. Each transaction is processed individually at every node.
This type of continuous movement of the data combines to build the blockchain architecture. Every transaction will have its own input and output which can either be single or multiple. The input is defined as the reference value in the previous transaction whereas the output sums up the amount as well as the address.
Mining: Just like the process of credit card networks, mining works in the same way. Each transaction that is present waits in the queue and is re-checked depending on its values. If the transaction is marked as correct, it then moves forward towards the respective blocks and gets a green signal in the network.
Need of Blockchain
Following are the reasons why we need blockchain:
- Time reduction: Though blockchain transactions are similar to credit card transactions they don’t take the same process time as them. They consume less time and are comparatively fast when compared with credit card transactions as they can take a few minutes.
- Unchangeable transactions: Blockchain has the capability to keep a track of all the transactions that were ever made.
- Reliability: Blockchain is a reliable source as all the active nodes maintain the copies of the blockchain ledger. Thus, even if a single node is inactive, the ledger does not stop working. It is still available for the users present in the network. Hence, a blockchain cannot undergo failure in the system.
- Security: As we have discussed above also, blockchain is a highly secure network as it has the feature of a digital signature that can conduct fraud-free transactions. Digital signatures make it possible to change the data when not used by a specific user.
- Collaboration: Blockchain is easily programmable and it can also generate actions in the system, events, as well as automatic payments when the criteria are fulfilled.
- Decentralised: A user needs to have the approval of the government or some authorities to make the transactions while following the conventional methods. Whereas in the case of Blockchain, a user can perform all the transactions with the mutual consensus of all the users which results in smooth, safe, as well as fast transactions.
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Applications of Blockchain
- Easy Money Transfer: The process of a money transfer using a blockchain is a much less expensive and time-saving process. When we talk about the US financial system, it still takes several days for a transaction to complete which is not the case when we use blockchain.
- Financial Exchange: In the last few years, a lot of industries are coming up that offer decentralised crypto-currency money exchanges. The exchanges have now ditched the slow speed and expensive ways of money exchanges by using blockchain. No doubt, the initial exchange done with blockchain is made via cryptocurrency, but later it can be used for other traditional investments also.
- Lending: Blockchain is used by lenders who can use blockchain for executing loans with the help of smart contracts. These contracts allow many events to stimulate things such as margin calls, service payment, loan repayment as well as collateral release automatically. This makes the loan processing process faster and also cheaper. Therefore, the lender also offers better prices.
- Real-estate: Real-estate work has a ton of paperwork that is needed for the verification of financial information. Hence, when all this is done on blockchain makes it a lot more secure and prevents hacking of the personal information of the company.
- Insurance: Blockchain uses smart contracts which can provide transparency to the customers as well as insurance givers. This is done by recording all the claims preventing the customers from creating duplicate claims for an event using blockchain.
- Personal transactions: The data such as birth date, security number, or any other information on the ledger is kept secure in the blockchain when compared to other local systems. The current systems are more prone to hacks and frauds. Hence, blockchain is used for securing access to personal information such as finance, healthcare, travel, education, etc.
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Alternatives of Blockchain
There are a few alternatives to blockchain which might be old-fashioned but have been working fine for so many years. Let us talk about them in the section below:
- Centralised systems: The main concern for using the traditional blockchain methods is mostly scalability. Consistency hampers when the user starts creating multiple copies of the data creating consumption problems. Blockchain has the feature of decentralising the database hence building a potential to improve security.
- Centralised Ledgers: There are companies that have the access to duplicate VisaNet. Hence, the cloud providers have now started offering centralised ledgers. Not that these ledgers are not prone to fraud or hacks, but it is still a better option.
- Distributed Databases: Huge companies such as Microsoft or oracle make the use of distributed databases which use a combination of both replication to persist data consistency and system efficiency.
- Cloud Storage: Blockchain is known to store the data in the cloud in an efficient manner. There are a few third-party storage providers as well who offer much better security and governance. They also tend to reduce the overheads of other technologies.
Features of Blockchain
- Immutable: Each blockchain node that is present in the network keeps a duplicate of the digital ledger. The node keeps on checking the transaction validity for adding a transaction. In case, the validity for the majority of nodes comes as true, the node is successfully added to the network. This means when the majority of the nodes approve of the transaction, only then the transaction block can be added to the ledger, otherwise, it is not possible.
- Distributed: Any changes made to the ledger are updated in the form of seconds or minutes. Because there is no interference from the intermediaries, validation for the change is processed fast in the blockchain.
- Decentralised: A user needs to have the approval of the government or some authorities to make the transactions while following the conventional methods. Whereas in the case of Blockchain, a user can perform all the transactions with the mutual consensus of all the users which results in smooth, safe, as well as fast transactions.
- Secure: blockchain is a highly secure network as it has the feature of a digital signature that can conduct fraud-free transactions. Digital signatures make it possible to change the data when not used by a specific user. Even if some attempt is made by someone the modification of the data means or for changing the hash IDs is next to impossible.
- Faster Settlement: The old or Traditional systems of banking are prone to risks or fallouts which eventually take several days for the transaction process. However, these transactions are not completely successful as they can corrupt very easily. Blockchain offers its users a faster process for settlement when compared to other banking systems.
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Conclusion
In this article, we have discussed Blockchain and everything that is related to blockchain technology. Blockchain is basically a kind of digital ledger that helps in maintaining transactional records. The information is stored in regular batches which are known as blocks and they are linked in a chronological way together to configure a continuous chain of blocks known as the blockchain. We have also discussed the application of blockchain, the need for blockchain, the features of blockchain, the architecture of blockchain, and what are the traditional methods before blockchain.
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