Blockchain is a decentralized, digital ledger that is used to record transactions in a secure and transparent manner. In Blockchain, a network of participants shares a secure database through blockchain, which provides real-time access to the latest information for all participants simultaneously.
Content Overview
It is a technology that enables a distributed network of computers to maintain a shared and immutable record of transactions, without the need for a central authority or intermediary.
What is a blockchain? Why should you care about it?
Blockchain enables peer to peer transfer of digital assets without any intermediaries. It was a technology originally created to support the famous cryptocurrency, BitCoin. The blockchain by itself has taken a life of its own and permeated a broad range of applications across many industries, including finance, healthcare, government, manufacturing, and distribution.
Bitcoin Blockchain and Blockchain History
In order to fully appreciate the innovation of blockchain, it’s important for us to understand the workings of the technology behind Bitcoin, even though our main focus is on a general blockchain.
Around 2008, 2009, when the institutions and markets we trusted went crumbling down, and everybody was running away from the Wall Street, a mysterious person, called Satoshi Nakamoto, introduced a new digital currency, a cryptocurrency called Bitcoin.
Bitcoin enabled an innovative platform for peer to peer transfer of value without any central authority. Now the question is with no central authority, how did Bitcoin realize trust and security?
Bitcoin achieve this by implementing software programs for validation, verification, consensus in a novel infrastructure called the blockchain. Later on in about 2012, 2013, computation elements were added to the blockchain infrastructure that has opened up a whole world of possibilities beyond simple currency transfer.
Why is Blockchain Popular?
Blockchain technology has gained popularity due to several reasons, including:
➣Decentralization
Blockchain technology eliminates the need for intermediaries such as banks, governments, and other third-party entities to verify transactions. This makes transactions faster, cheaper, and more secure.
➣Security
Blockchain technology uses cryptography to secure data, making it virtually impossible to tamper with or hack. Each transaction is encrypted and verified by multiple nodes on the network, making it very difficult to alter.
➣Transparency
Transactions on the blockchain are public and visible to all participants in the network, making it more transparent than traditional centralized systems.
➣Efficiency
Blockchain technology automates many processes, reducing the time and cost associated with manual record-keeping and reconciliation.
➣Trust
Blockchain technology uses a consensus mechanism to validate transactions, making it a trustless system. Participants can transact with each other without having to trust a central authority.
These factors have contributed to the growing popularity of blockchain technology, particularly in areas such as finance, supply chain management, and healthcare.
Types of Blockchain
Public Blockchain
This type of blockchain is open to anyone and allows anyone to participate in the network. Public blockchains are decentralized, meaning that no single entity has control over the network.
Private Blockchain
This type of blockchain is restricted to a specific group of people or organizations who have been given permission to participate. Private blockchains are often used for enterprise applications.
Consortium Blockchain
This type of blockchain is a hybrid between public and private blockchains. In a consortium blockchain, a group of organizations come together to form a network where each participant has some degree of control.
Hybrid Blockchain
This type of blockchain combines elements of both public and private blockchains. In a hybrid blockchain, certain parts of the network are public, while others are private.
Permissionless Blockchain
This type of blockchain is open to anyone who wants to participate, and no permission is required to join the network.
Permissioned Blockchain
This type of blockchain requires permission to join the network. Participants must be approved by a central authority before they can join.
Federated Blockchain
This type of blockchain is controlled by a group of organizations, known as a federation. The federation determines who can participate in the network and what the rules are.
Each type of blockchain has its own advantages and disadvantages, and the choice of which type to use will depend on the specific use case and requirements of the project.
The Process of Transaction in Blockchain
One of Blockchain technology’s main features is the way it confirms and authorizes transactions. The process of a transaction in blockchain typically involves the following steps:
➣Creation of transaction: The first step in a blockchain transaction is the creation of a transaction by a user. This transaction typically contains the amount of cryptocurrency to be transferred, the recipient’s address, and any additional information required by the blockchain network.
➣Verification of transaction: Once a transaction is created, it needs to be verified by the nodes on the network. Each node in the network checks the transaction to ensure that it is valid and meets the network’s rules and standards. The verification process involves confirming that the sender has sufficient funds to complete the transaction, that the transaction has not been previously spent or double-spent, and that the transaction complies with the network’s rules.
➣Inclusion in a block: After verification, the transaction is added to a block. A block is a group of verified transactions that are combined together and added to the blockchain. Each block contains a unique code called a “hash” that identifies the block and all the transactions within it.
➣Verification of block: Once a block is created, it is verified by the nodes on the network to ensure that it meets the network’s standards. This involves confirming that the block contains only valid transactions and that the transactions comply with the network’s rules.
➣Addition to the blockchain: After the block has been verified, it is added to the blockchain, which is a decentralized and immutable ledger that records all the transactions on the network. Once a block has been added to the blockchain, it cannot be modified or deleted.
➣Confirmation of transaction: Finally, the transaction is considered complete when it has been added to the blockchain and has received a certain number of confirmations from the network. The number of confirmations required varies depending on the network and the size of the transaction, but typically ranges from 1 to 6 confirmations.
Overall, the transaction process in blockchain is designed to be secure, transparent, and decentralized, with each step of the process being verified and recorded on the blockchain for transparency and security.
What are the Features of Blockchain Technology?
Some of the key features of blockchain technology are:
- Decentralization: Blockchain technology is decentralized, meaning it operates on a peer-to-peer network with no central authority or intermediary, making it more resilient to fraud or manipulation.
- Transparency: All transactions on a blockchain are recorded and visible to all participants on the network, making it transparent and reducing the risk of fraud.
- Immutability: Once a transaction is recorded on a blockchain, it cannot be altered or deleted, ensuring the integrity of the data.
- Security: Blockchain technology uses cryptography to secure transactions and ensure that only authorized parties can access the data.
- Speed and Efficiency: Blockchain transactions can be completed quickly and efficiently, without the need for intermediaries, resulting in faster processing times and lower transaction costs.
- Smart Contracts: Blockchain technology allows for the use of smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
Overall, these features make blockchain technology a promising solution for various applications, including finance, supply chain management, and more.
What are the Key Components of Blockchain Technology?
Blockchain technology is composed of several key components that work together to create a secure and decentralized system. These key components include:
- Distributed Ledger: Blockchain is a decentralized technology that uses a distributed ledger to record transactions. Each node in the network has a copy of the ledger, and all nodes must agree on the current state of the ledger.
- Cryptography: Blockchain uses cryptography to secure transactions and ensure the integrity of the ledger. This includes digital signatures, hash functions, and public-private key pairs.
- Consensus Mechanism: In order for the network to agree on the current state of the ledger, a consensus mechanism is used. This mechanism determines how transactions are validated and added to the ledger.
- Smart Contracts: Smart contracts are self-executing contracts that are programmed to execute automatically when certain conditions are met. They can be used to automate complex processes and reduce the need for intermediaries.
- Nodes: Nodes are the computers that participate in the network by validating transactions and maintaining a copy of the ledger. Nodes can be run by individuals or organizations.
Together, these key components form a secure and decentralized system that can be used for a variety of applications, from financial transactions to supply chain management.
What are Blockchain Protocols?
Blockchain protocols are the set of rules and procedures that dictate how a blockchain network operates. A blockchain is a distributed, decentralized ledger that records transactions in a secure and transparent manner. The protocol defines the rules that govern how transactions are validated, how new blocks are added to the chain, and how consensus is reached among network participants.
Blockchain protocols typically include a consensus mechanism that enables participants to agree on the current state of the network, as well as rules for data storage, transaction validation, and network governance. Some popular blockchain protocols include Bitcoin, Ethereum, and Ripple.
One important aspect of blockchain protocols is that they are designed to be trustless, meaning that they do not rely on a central authority to verify transactions. Instead, network participants rely on cryptographic algorithms to ensure the integrity of the data on the blockchain.
- Bitcoin: Bitcoin was the first cryptocurrency and remains the most popular and valuable. It was created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto. Bitcoin is a decentralized currency that uses blockchain technology to record transactions and create new coins. It has a finite supply, with a maximum of 21 million bitcoins that can ever be mined. Bitcoin is known for its high volatility and has been adopted by many merchants and businesses as a form of payment.
- Ethereum: Ethereum is a decentralized platform that enables the creation of decentralized applications (DApps) and smart contracts. It was created in 2015 by Vitalik Buterin and is the second-largest cryptocurrency by market capitalization after Bitcoin. Ethereum’s native currency is Ether (ETH), which is used to pay for transactions and computational services on the Ethereum network. Ethereum is known for its flexibility and has been used to create a wide range of DApps, including decentralized exchanges, games, and prediction markets.
- Ripple: Ripple is a payment protocol and cryptocurrency that was created in 2012 by Ripple Labs. Unlike Bitcoin and Ethereum, which are decentralized currencies, Ripple is a centralized currency that is controlled by Ripple Labs. Ripple’s native currency is XRP, which is used to facilitate cross-border payments and remittances. Ripple is known for its fast transaction speeds and low fees, making it popular among financial institutions and payment providers.
Blockchain protocols have a wide range of potential applications, from financial transactions to supply chain management, and they are being explored by businesses, governments, and organizations around the world as a way to increase transparency, security, and efficiency in a variety of industries.
Blockchain Structure
Transaction is the basic element of the Bitcoin Blockchain. Transactions are validated and broadcasted. Many transactions form a block. Many box form a chain through a digital data link.
Blocks go through a consensus process, to select the next block that will be added to the chain. Chosen block is verified, and added to the current chain. Validation and consensus process are carried out by special peer nodes called miners. These are powerful computers executing software defined by the blockchain protocol.
The blockchain technology supports methods for
- A decentralized peer-to-peer network : Decentralization means the network operates on a user-to-user (or peer-to-peer) basis.
- A collective trust model among unknown peers
- A distributed immutable ledger of records of transactions: A Distributed Immutable Ledger means the data doesn’t sit on one all-powerful server and the data stored in it cannot be deleted or edited
Transactions bring about transfer of value in Bitcoin Blockchain. A fundamental concept of a bitcoin network is an Unspent Transaction Output, also known as UTXO. The concept UTXO defines the inputs and outputs of such a transaction.
Once a block is verified and algorithmically agreed by the miners, it is added to the chain of blocks, viz., the blockchain. An Unspent Transaction Output (UTXO) can be spent as an input in a new transaction.
Blockchain Basic Operations
The main operations in a blockchain are transaction validation and block creation with the consensus of the participants. Yet, there are many underlying implicit operations, as well.
Operations in the decentralized network are the responsibility of the peer participants and their respective computational nodes for example, laptop, desktop, and server racks. These operations include validation transactions, gathering the transactions for a block, broadcasting the ballot transactions in the block, and consensus on the next block creation, and chaining the blocks to form an immutable record.
If we want to explore some of the fundamental operations of the bitcoin blockchain, first, we have to discuss the participants. There are two major roles for the participants.
Participants that initiate transfer of value by creating a transaction, additional participants called miners, who pick on added work or computation to verify transactions, broadcast transaction, compete to claim the right to create a block, work on reaching consensus by validating the block, broadcasting the newly created block, and confirming transactions.
Miners compete to solving a puzzle to determine who earn the right to create the next block. Once a miner solves the puzzle, the announcement is broadcast to the network and the block is also broadcast to the network. Then, other participant verify the new block. Participants reach a consensus to add a new block to the chain. This new block is added to their local copy of the blockchain. Thus, a new set of transactions are recorded and confirmed.
The algorithm for consensus is called proof-of -work protocol, since it involves work a computational power to solve the puzzle and to claim the right to form the next block.
Ethereum Blockchain
Bitcoin blockchain is open-source and the entire code is available on the GitHub. During the initial years beginning roughly in 2009, this open-source code was extended to release different cryptocurrencies. About 300 plus cryptocurrencies were introduced. Bitcoin supports an optional and special feature called scripts for conditional transfer of values.
Ethereum Blockchain extended the scripting feature into a full-blown code execution framework called smart contract.
A Smart Contract provides the very powerful capability of “code execution” for embedding business logic on a Blockchain. Based on such capabilities, three major types of blockchains emerge from Bitcoin foundation.
- Type one deals with the coins in cryptocurrency currency chain. Example, Bitcoin.
- Type two supports cryptocurrency and a business logic layer supported by code execution. Example, ethereum.
- Type three involves no currency but supports software execution for business logic. Example, The Linux Foundation’s Hyperledger.
Significant innovations such as smart contracts have opened up broader applications for blockchain technology. Private and permissioned- blockchains allow for controlled access to the blockchain, enabling many diverse business models.
In a Private Blockchain, access to the Blockchain is limited to selected participants.
Permissioned or Consortium Blockchain has the benefits of a public blockchain with allowing only users with “permission” to collaborate and transact.
A smart contract provide the very powerful capability of code execution for embedding business logic on the blockchain. Based on such capabilities, three major types of blockchains emerge from Bitcoin foundation.
How can businesses benefit from blockchain?
Blockchain has the potential to revolutionize a wide range of fields, such as
- Goods transfer, for example, supply chain
- Digital media transfer, for example, sale of art
- Remote services delivery, example, travel and tourism
- Platform for decentralized business logic, for example, moving computing to data sources.
- And distributed intelligence, example, education credentialing
Additional applications of blockchain include distributed resources, for example,
- Power generation and distribution
- Crowd funding for example, startup fund raising
- Crowd operations, for example, electronic voting.
- Identity management, for example, one ID for all your life’s functions.
- And government public records and open governing
Moreover, blockchain can enable an inclusive economy. It can enable a person in a remote corner of the world to partake in a democratic process. Opportunities for innovative applications are endless. There is a dire need for critical thinkers, designers and developers who can envision and create newer application models on blockchain to benefit the world.