Bitcoin, cryptocurrency, blockchain... So what does it all mean?
The 21st century is all about technology. With the increasing need for modernization in our day-to-day lives, people are open to accepting new technologies. From using a remote for controlling devices to using voice notes for giving commands; modern technology has made space in our regular lives.
Blockchain Technology. Blockchain- The revolutionary technology impacting different industries miraculously was introduced in the markets with its very first modern application Bitcoin. Bitcoin is nothing but a form of digital currency cryptocurrency which can be used in the place of fiat money for trading. And the underlying technology behind the success of cryptocurrencies is termed as Blockchain. Creating cryptocurrencies is one of the applications of Blockchain technology and other than Bitcoin, there are numerous applications that are being developed on the basis of the blockchain technology.
In the simplest terms, Blockchain can be described as a data structure that holds transactional records and while ensuring security, transparency, and decentralization.
You can also think of it as a chain or records stored in the forms of blocks which are controlled by no single authority. A blockchain is a distributed ledger that is completely open to any and everyone on the network. Once an information is stored on a blockchain, it is extremely difficult to change or alter it. Each transaction on a blockchain is secured with a digital signature that proves its authenticity. Due to the use of encryption and digital signatures, the data stored on the blockchain is tamper-proof and cannot be changed.
Blockchain technology allows all the network participants to reach an agreement, commonly known as consensus. All the data stored on a blockchain is recorded digitally and has a common history which is available for all the network participants. This way, the chances of any fraudulent activity or duplication of transactions is eliminated without the need of a third-party.
In order to understand blockchain better, consider an example where you are looking for an option to send some money to your friend who lives in a different location.
A general option that you can normally use can be a bank or via a payment transfer application like PayPal or Paytm. This option involves third parties in order to process the transaction due to which an extra amount of your money is deducted as transferring fee. Moreover, in cases like these, you cannot ensure the security of your money as it is highly possible that a hacker might disrupt the network and steal your money.
In both the cases, it is the customer who suffers. This is where Blockchain comes in. Instead of using a bank for transferring money, if we use a blockchain in such cases, the process becomes much easier and secure.
There is no extra fee involved as the funds are directly processed by you thus, eliminating the need for a third party. Moreover, the blockchain database is decentralised and is not limited to any single location meaning that all the information and records kept on the blockchain are public and decentralized.
A blockchain is a chain of blocks that contain data or information. Despite being discovered earlier, the first successful and popular application of the Blockchain technology came into being in the year by Satoshi Nakamoto. He created the first digital cryptocurrency called Bitcoin through the use of Blockchain technology.
Each block in a blockchain network stores some information along with the hash of its previous block. A hash is a unique mathematical code which belongs to a specific block. If the information inside the block is modified, the hash of the block will be subject to modification too. The connection of blocks through unique hash keys is what makes blockchain secure.
While transactions take place on a blockchain, there are nodes on the network that validate these transactions. In Bitcoin blockchain, these nodes are called as miners and they use the concept of proof-of-work in order to process and validate transactions on the network. In order for a transaction to be valid, each block must refer to the hash of its preceding block.
The transaction will take place only and only if the hash is correct. If a hacker tries to attack the network and change information of any specific block, the hash attached to the block will also get modified. The breach will be detected as the modified hash will not match with the original one. This ensures that the blockchain is unalterable as if any change which is made to the chain of blocks will be reflected throughout the entire network and will be detected easily.
Blockchains are decentralized in nature meaning that no single person or group holds the authority of the overall network. While everybody in the network has the copy of the distributed ledger with them, no one can modify it on his or her own.
This unique feature of blockchain allows transparency and security while giving power to the users. With the use of Blockchain, the interaction between two parties through a peer-to-peer model is easily accomplished without the requirement of any third party. Blockchain uses P2P protocol which allows all the network participants to hold an identical copy of transactions, enabling approval through a machine consensus.
For example, if you wish to make any transaction from one part of the world to another, you can do that with blockchain all by yourself within a few seconds.
Moreover, any interruptions or extra charges will not be deducted in the transfer. The immutability property of a blockchain refers to the fact that any data once written on the blockchain cannot be changed.
To understand immutability, consider sending email as an example. Once you send an email to a bunch of people, you cannot take it back. This is how immutability works. Once the data has been processed, it cannot be altered or changed. Change in one hash will lead to change in all the following hashes. It is extremely complicated for someone to change all the hashes as it requires a lot of computational power to do so. Hence, the data stored in a blockchain is non-susceptible to alterations or hacker attacks due to immutability.
With the property of immutability embedded in blockchains, it becomes easier to detect tampering of any data. Blockchains are considered tamper-proof as any change in even one single block can be detected and addressed smoothly. There are two key ways of detecting tampering namely, hashes and blocks. As described earlier, each hash function associated with a block is unique. You can consider it like a fingerprint of a block. Any change in the data will lead to a change in the hash function.
Though Blockchain has evolved to many levels since inception, there are two broad categories in which blockchains can be classified majorly i.
Public and Private blockchains. Public Blockchain- As the name suggests, a public blockchain is a permissionless ledger and can be accessed by any and everyone. Anyone with the access to the internet is eligible to download and access it. Moreover, one can also check the overall history of the blockchain along with making any transactions through it.
Public blockchains usually reward their network participants for performing the mining process and maintaining the immutability of the ledger.
An example of the public blockchain is the Bitcoin Blockchain. Public blockchains allow the communities worldwide to exchange information openly and securely. However, an obvious disadvantage of this type of blockchain is that it can be compromised if the rules around it are not executed strictly. Moreover, the rules decided and applied initially have very little scope of modification in the later stages.
Private Blockchain- Contrary to the public blockchain, private blockchains are the ones which are shared only among the trusted participants. The overall control of the network is in the hands of the owners. Moreover, the rules of a private blockchain can be changed according to different levels of permissions, exposure, number of members, authorization etc. Private blockchains can run independently or can be integrated with other blockchains too. These are usually used by enterprises and organizations.
Therefore, the level of trust required amongst the participants is higher in private blockchains. Though Bitcoins and cryptocurrencies are the first popular application of Blockchain technology, they are not the only ones. While the basic idea of trustworthy records and giving the power in the hands of users has enormous potential, it sure has raised a lot of hype in the markets too.
The magic of this technology sure has the power to transform industries given the usage is planned and executable in actual senses. Different businesses deal with each other in order to exchange services or products.
All the give and take terms and conditions are signed by the involved parties in the form of agreements or contracts. However, these paper-based contracts are prone to errors and frauds which challenges the trust factor between both the parties and raises risks.
Blockchain brings forward an amazing solution to this problem through Smart Contracts. Smart contracts perform similar functions as paper-based agreements. The differentiating factor about smart contracts is that these are digital as well as self-executable in nature.
Self-executable meaning that when certain conditions in the code of these contracts are met, they are automatically deployed. Ethereum, an open source blockchain platform has introduced smart contracts in the Blockchain ecosystem. Smart contracts can be used for different situations or industries such as financial agreements, health insurances, real estate property documents, crowdfunding etc.
Once the name and quantity of a drug is shipped from a manufacturing company to be delivered ahead to the pharmacist, a smart contract with all the valid data like the information of the drug, the quantity of supply etc. This smart contract will be responsible for managing the entries throughout the entire supply chain between different intermediaries.
Since the smart contract works on certain defined conditions, no one can alter them or make any changes in the contract thus, ensuring trust and authenticity of the drugs.
No matter how secure government elections are made, the chances of frauds through anti-social elements always persists. The current voting system relies on manual processing and trust. Even if security breaches and frauds are eliminated, the chances of manual errors cannot be ignored.
In such cases, the best solution is to automate the overall process with the help of smart contracts. Blockchain smart contracts provide a modern system through which these common issues can be easily eliminated.
Entries in the smart contracts will allow transparency and security while maintaining the privacy of the voters thus, enabling fair elections. The world is getting more digitized with every passing day.
How are Bitcoin and blockchain different?
Liechtenstein has become the first country to regulate the token economy. The Act on Tokens and Entities Providing Services Based on Trusted Technologies (aka the #Blockchain Act), passed unanimously and will be effective on January 1, 2020.#Crypto— Josh Lawler (@JLawlerCal) October 8, 2019
How does a blockchain work - Simply Explained
How does the Bitcoin blockchain work?
To understand immutability, consider sending email as an example. If a hacker tries to attack the network and change information of any specific block, the hash attached to the block will also get modified. Authentication and authorization supplied in this way allow for interactions in the digital world without relying on expensive trust. Banks continue to use a complex infrastructure for simple transactions, like sending money abroad. All of this work is, of course, in addition to what the entrepreneurs and developers are doing, either by finding new ways to use the bitcoin or ethereum blockchains, or else creating entirely new blockchains. Is Blockchain Secure? Information held on a blockchain exists as a shared — and continually dies — database. Specifically, they have three parts:. Manual data entry also has human limitations.