What is block chain?
A Blockchain is a methodology, originally called as block chain, is a growing list of records, called blocks, which are linked using cryptography. Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the currency bitcoin. Without requiring a third-party intermediary like bank or government. Once a data is recorded inside a blockchain, it is very difficult to change it. Which is used for the secure transfer of items like money, property, contracts, etc.
Terminologies used in Blockchain:
1. Distributed Ledger Technology
Distributed Ledger Technology:
Imagine that everybody has a notebook in which anyone can see what is written by others. If you record “Hello, world!” in your notebook, other owners of similar notebooks will see this content (copy of record). This is what is provided by distributed ledger technology. Everyone gets information about what is happening within the network in real-time. As you can see from the picture above, all users of the network (like for Bitcoin or Ethereum) will receive updated information on new blocks. This means that all operations within the network can be tracked. And this is where the nodes(notebooks) come into play – and they take care of storage of the ledger (Copy of the live ledger).
A node is a replica containing all the information about the operations performed within the network. For example, if there are 100 blocks in the blockchain and there are 300 nodes, each node will contain records of all 100 blocks.
You may ask, why do we need more than one node? Well, this is why blockchain technology is so popular. As there are many nodes, and each contains information about all transactions within the network, there is no real opportunity for fraud, system failure, or hacks. This is the reason why all operations within blockchain can be performed without the participation of a third party.
For some blockchains (Bitcoin, for instance), there exists a special category of nodes called miners.
The term “miners” appeared when Bitcoin arrived on the scene. Basically, miners are nodes that not only store all information about all transactions within the network, also record and validate the transactions.
In blockchain technology, data (Eg. Crypto currency details, Patient detail/record, etc.) is collected in blocks, and blocks are connected to each other, forming a chain. This describes why the technology is called blockchain.
The size of a block and the type of data it contains, is fully depends upon the type of blockchain. For Bitcoin, it is transactions, And for Hospitals, it is Patient record/information which are considered as block.
How Does It Work?
Here is a chart showing how blockchain works:
A Blockchain (Cryptocurrency) is a chain of blocks which contain information, or in other words group of blocks which form a Blockchain. The data which is stored inside a block, depends on the type of domain (Cryptocurrency, EHR, Banking, Etc.).
For Example, A Bitcoin Block contains information/data about the Sender, Receiver, number of bitcoins it contains.
In a Blockchain the first block is called the Genesis block. Each new block in the chain is linked to the previous block.
Each block contains a hash, which is an index, unique to each block. It identifies a block and all of its contents. So once a block is created a hash is assigned, and onwards any change inside the block will cause the hash to change. Each Block has Data, Hash, Hash of the previous block.
Consider following example, where we have a chain of 3 blocks. The 1st block has no predecessor since it is a Genesis Block. Hence, it does not contain has the previous block. Block-2 contains its own hash, along with hash-information of block-1. Likewise block-3 contains Hash-information of the previous block, along with its very own hash.
Hence, all blocks which are created after the first-block will containing hashes(hash information) of previous blocks. This is the technique that makes the blockchain more secure.
Let’s see how it works -Assume an attacker is able to change the data present in the Block 2. Correspondingly, the Hash of the Block also changes. But, Block 3 still contains the old Hash of the Block 2. This makes Block 3, and all succeeding blocks invalid as they do not have correct hash the previous block.
How Blockchain Transaction Works?
- Anyone can request a transaction. The transaction could be involved cryptocurrency, contracts, records or other information.
- The requested transaction is broadcasted to a P2P network with the help of nodes.
- The network of nodes validates the transaction and the user’s status with the help of known algorithms.
- Once the transaction is complete the new block is then added to the existing blockchain. In such a way that is permanent and unalterable.
Why do we need Blockchain?
Here, are some reasons why Blockchain technology has become so popular.
Resilience: Blockchains is often replicated architecture. The chain is still operated by most nodes in the event of a massive attack against the system.
Time reduction: In the financial industry, blockchain can play a vital role by allowing the quicker settlement of trades as it does not need a lengthy process of verification, settlement, and clearance because a single version of agreed-upon data of the share ledger is available between all stack holders.
Reliability: Blockchain certifies and verifies the identities of the interested parties. This removes double records, reducing rates and accelerates transactions.
Unchangeable transactions: By registering transactions in chronological order, Blockchain certifies the unalterability, of all operations which means when any new block has been added to the chain of ledgers, it cannot be removed or modified.
Fraud prevention: The concepts of shared information and consensus prevent possible losses due to fraud or embezzlement. In logistics-based industries, blockchain as a monitoring mechanism act to reduce costs.
Security: Attacking a traditional database is the bringing down of a specific target. With the help of Distributed Ledger Technology, each party holds a copy of the original chain, so the system remains operative, even the large number of other nodes fall.
Transparency: Changes to public blockchains are publicly view able to everyone. This offers greater transparency, and all transactions are immutable.
Collaboration: Allows parties to transact directly with each other without the need for mediating third parties.
Decentralized: There are standards rules on how every node exchanges the blockchain information. This method ensures that all transactions are validated, and all valid transactions are added one by one.
This post covered the barebones of Blockchain technology, having seen the terms and working analogy inside the Blockchain, we have reinforced the readers with the working of blockchain. Well in the next post we will be focusing on Blockchain versions, and a concrete and detailed example will be explained, including the domain specific approach and example coding.