INTRODUCTION TO BLOCKCHAIN

INTRODUCTION TO BLOCKCHAIN

Blockchain is the buzzword nowadays. It has become much popular in recent years because of the rise of cryptocurrencies like bitcoin and ethereum. Here we will get to know the core concepts of blockchain technology.

DEFINITION

Blockchain is the distributed ledger that keeps the records of transactions in blocks, and each block contains data, hash value, and the hash value of the previous block, which then makes the whole chain of blocks, called blockchain.

The type of data being stored in a block depends on the type of the blockchain. For example, bitcoin blockchain will contain the information of bitcoin sender, receiver, and amount of bitcoins transacted.

The hash value is the cryptographic and encrypted value used as the unique identifier that is generated for every new block in order for that block to be identified or accessed in a chain of blocks.

Finally, each block contains the hash value of the previous block that makes the cryptographically secured chain of blocks.

BACKGROUND

The term was initially used by a group of researchers in 1991, who intended to timestamp the digital documents so that no one can tamper with them. Later, this technology was introduced by an individual or a group called Satoshi Nakamoto in 2009, in order for the creation of the first-ever cryptocurrency, called Bitcoin. Satoshi Nakamoto reinvented this technology to support the development of Bitcoin.

DECENTRALIZED

Blockchain is the decentralized technology, means it is not owned or controlled by any organization but it is maintained by thousands of individuals (e.g. miners or nodes) existing at different locations and connected in a P2P (Peer-To-Peer) Network.

DISTRIBUTED

Blockchain is the publicly distributed ledger, means each individual owns the copy of the ledger and verifies any activity and also keep an eye on others’ work in the network because every change or update in the network is replicated through all nodes synchronously. And, all users in a p2p network make consensus about adding a new record in the blockchain after validating it, through the use of consensus algorithms including proof of work and proof of stake. So, it is hard for any person to change or tamper with the records, hence making the system transparent and immutable.

TRUSTWORTHY

Unlike traditional financial institutions such as banks on which people have to put trust that they will keep their money secure but they don’t always, as there are examples of several financial failures we have seen before. But, blockchain is the trustworthy technology in which people don’t need to trust on each other because the ledger is publicly distributed and each person owns a copy of that ledger, which means any new transaction or record comes in, it is replicated through all other nodes in the network synchronously, so the trust is automatically built into the system as people put eye on each other’s work and catch any fraudulent activity.

HOW IT WORKS

Blockchain technology is maintained by the thousands of individuals (e.g. miners or nodes) which are connected together in a P2P (Peer-To-Peer Network). The miners use consensus algorithms such as Proof of Work (PoW) and Proof of Stake (PoS) to make the ledger transparent and secure. In PoW, each miner solves the complex cryptographic puzzle in order to add the new record in the blockchain. Then, all other miners validate that transaction and then add that new record inside the blockchain, hence making the system reliable and secure.

RISE OF CRYPTOCURRENCIES

Finance has always been the most vulnerable industry and there have been the several financial failures in the past. One of the biggest financial failures comes in the year of 2008 (also called Global Financial Crisis) which results in big economic crisis and loss of people’s trust on financial institutions. To overcome the financial challenges regarding the payments industry, a concept of cryptocurrency been introduced by the individual or group called Satoshi Nakamoto, who invented the first-ever digital currency, which is Bitcoin. Satoshi Nakamoto introduces the blockchain as the core technology behind the bitcoin for the purpose of keeping records of bitcoin transactions.

The value of bitcoin starts with $0 dollar and reached to $17000 (equal to 1 bitcoin) as of 2017. The rapid growth in the Bitcoin digital currency has inspired others to develop new cryptocurrencies, hence there are now more than 1600 cryptocurrencies developed including Ethereum, Ripple, Dash, Monero, and Litecoin, all based on the blockchain technology.

BEYOND THE CRYPTOCURRENCIES

Blockchain has been the key technology behind the rapid growth in cryptocurrencies, but soon it was realized that blockchain is not limited to cryptocurrencies and it can be used in other areas including Cloud Storage, Internet of Things, Insurance, Real Estate, Crowdfunding, E-Voting, Healthcare, Cybersecurity and Digital Identity etc.