Blockchain is the new emerging technology, and it has become a very popular trend in recent years. One of the reasons it became immensely popular is the concept of the cryptocurrency, for eaxmple bitcoin. This guide will explain the core concepts of the Blockchain. What is Blockchain? How it is used? Which problems have been solved by the Blockchain? The concept of Bitcoin? How the blockchain database is controlled?
Blockchain (also called distributed ledger) is the growing list of records (or blocks) which are linked together and make a chain of blocks, and called as blockchain.
This term was used by the group of researchers in 1991, who intended to timestamp digital documents so that no one can backdate or tamper with them. Later, this technique was used by Satoshi Nakamoto in 2008, a community or group of people who introduced and designed bitcoin (digital currency), and they also created the first blockchain database to support the design and development of the bitcoin.
HOW IT WORKS
As described above, blockchain is the chain of block and each block contains data. The important feature of blockchain database is that once data is recorded in a block it is very difficult to alter it.
Each block consists of three parts or segments: the first segment contains the data, second contains the hash value of that block, and third contains the hash value of previous record or block.
Now, the type of data contained by the block depends on the type of blockchain, as bitcoin blockchain will contain the transaction details such as sender, receiver, and amount of coins.
The hash value is the unique identifier of the block, used to identify the particular block and its content in the blockchain. The hash value is generated by the hash function used in the encryption techniques in cryptography.
As mentioned above, that each block contains a hash value of previous block, the whole process then creates chain of blocks linked with each other, which makes blockchain secure and reliable, because if we try to change any particular block it will cause the change in its hash value, which will then make all subsequent blocks invalid.
CONCEPT OF BITCOIN
There are several issues we face in traditional banking systems such as centralized banks or government institutions takes days or months to perform transactions because one transaction goes through several third-parties or intermediaries and they also take their share, another is fake currencies which create double-spending problems.
One of the biggest issues is that centralized banks can collapse any time, as done in the past 2008 financial crisis, a biggest banking failure which caused people lose their trust from banks, also there have been several database failures in large applications like eBay. Now, there are several online payment systems like Paypal or Citrus that solve some of these issues but they are still dependent on banks.
Bitcoin is the first ever digital currency introduced to solve all these issues. It has been the inspiration for other digital currencies. Blockchain technology verifies the ownership of any bitcoin and makes sure that only one person has a claim on it at a time.
Bitcoin came with a revolutionary change in making digital electronic transactions, as it requires no transaction fees, performs all kind of transactions in minutes. We can perform direct one-to-one transactions with Bitcoin without any third-party interference.
One of the biggest advantages of Bitcoin is that it is decentralized means no person or institution owns the Blockchain network on which bitcoin is dependent, and therefore it can never be hacked or manipulated because of the solid structure of Blockchain.
HOW BLOCKCHAIN DATABASE IS CONTROLLED
Blockchain structure consists of three technologies:
Proof of Work
As mentioned above, Blockchain is not owned by individual person or institution, but it is maintained and controlled by thousands of individuals called miners who have high-speech computing machines in which they solve complex mathematical problems of encryption and hash values, and they try to solve the problem of next block by discovering the correct hash value which will connect new block to the previous one to make the blockchain stable. All computers are connected in order and create Peer-To-Peer Network, which helps maintain the consistency and flexibility of the blockchain.
The blockchain technology uses the private key to make identities secured and uses the cryptographic hash functions to make immutable blockchain. Each person who owns a bitcoin gets private and public keys. We use the private key to access our owned currency (bitcoin) which we own and it should remains in secrecy. We share public key to others so they can send money in our account.
PROOF OF WORK
It is the process of slowing down the creation of new blocks, as each new block is created after 10 minutes because now there are powerful computer which execute thousands of instructions in seconds, so hackers can try to add invalid or corrupted block in blockchain, so to avoid this, this process ensures that miners can easily monitor the blockchain and make the consensus on current state of blockchain.
Now, miners compete against each other to solve the equation and when any person solves it, he then adds a new block in the blockchain and then all other miners gets that block and verify it, if all find it valid then it permanently gets added in the blockchain and that miner (who solved the problem) gets a bitcoin in reward, if other miners find that block invalid then that block is deleted from the blockchain.
Blockchain technology provides dozens of benefits like transferring money from one country to another in minutes rather than using the traditional banks that take many days to perform transactions. Blockchain is also being used in remote areas where people don’t have a facility of having the bank account but they can fulfill their needs using blockchain instead. It is now being adopted in several areas like Financial Institutions, Insurance, Tax Collection, Voting System, Cloud Storage, Encrypted Messaging, Stock Exchange and Real Estate etc. There is no doubt in saying that Blockchain and Cryptocurrency will change the world in years to come.