A basic guide to Blockchain and its working with Bitcoins is here.
[dropcap]M[/dropcap]ost of us have heard about Blockchain and Bitcoins – a form of cryptocurrency. But what it is actually? The first thing that needs to be told is that Blockchain and Bitcoins are really two different things. Cryptocurrencies are the digital currencies while Blockchain is a technology behind cryptocurrencies i.e., sharing of cryptocurrencies.
“Blockchain solves the problem of manipulation. When we speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — i.e., Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”
– Vitalik Buterin, inventor of Ethereum
The blockchain is a technology that once you get to know about it, you will never deny on how powerful it is. It is a technology that stores information across the network of personal computers making them not centralized but distributed. This means that no personal company or a person owns the system.
The first distributed blockchain was conceptualized by Satoshi Nakamoto in 2008 and implemented the following year as a core component of the digital currency Bitcoin. The blockchain is a list of records, called blocks, which are linked and secured using cryptography. Since it is a distributed system, every computer i.e., a node that relies on Blockchain will have the records. In fact, no one owns the record. The records, linked together are present on a network that is shared by all the nodes.
To make it more clear, we will take a usual condition and the same condition with blockchain technology.
#A usual condition:-
Suppose person A is a buyer and person B is a seller in an online marketing. Now when A pays B on PayPal, the PayPal will request the payment from A’s visa. Then the visa will request A’s bank account. The bank will then transfer the amount doing a clearance. Person B will then receive the amount. Here the bank acts as an intermediary. A and B use intermediaries because they may not trust the other party but they trust that the intermediary will assure the transaction is completed faithfully. Here the bank acts as a Clearing House.
#Using Blockchain technology:-
A’s transaction is put in a new block. The new block is broadcasted to the network for validation by all the other nodes. The miners(other nodes) in the network work together to approve the transaction and validate it using cryptographic techniques. The miners are actually the person who is present in the network. They first validate the transaction by seeing that whether the requested transaction is valid or not, like whether A has enough amount to send to B. The validation, called as Mining is done by Proof of Work. Once it gets solved the transaction is validated and then the block is added to the chain of blocks which provides a public, permanent, non-repudiable, and transparent record of the transaction. B will then receive the money. Since everyone can see the blocks on a network that proves the transparency of Blockchain and no one can cheat on it.
The blockchain is a technology behind Bitcoins:-
Image courtesy: bitcoins.net
Using Blockchain, people can share the Bitcoins. This transaction in form of the block will be added to the network once it is validated by Mining. Mining is the process of adding the block to Bitcoin’s public ledger of past transactions. This ledger of past transactions is called as the Blockchain. The primary purpose of mining is to allow bitcoin nodes to reach a secure, tamper-resistant consensus.
Now explaining the mining process:
A block is constituted by several “pending” transactions broadcasted to the global blockchain network. Every 10minute(or so) specialized computers-called “miners” collect a few hundred transactions and combine them in a block. Miners will now process the new block in order to reach a “consensus” on what the new blockchain should look like. This is done by “Proof of work” problem. Suppose there are 5 miners- A, B, C, D and E. Miner C solved the Proof of work problem i.e., he has been the first one to be able to find a hash value for the new block using below a certain threshold. This proof of work is in its turn diffused to the network for acceptance by every member. Other members validate and confirm the hash before adding the new block to their copy of blockchains. When a majority of miners have added to their own copy of the blockchain, the block is validated and considered definitive. All the transactions in it have been validated and stored in the blockchain.
Mining is also the mechanism used to introduce Bitcoins into the system. Miners are paid any transaction fees as well as a “subsidy” of newly created coins. These both serve the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system. There is a wallet also with every miner that receives bitcoins, store them and to send them to others. Bitcoin wallets don’t hold actual Bitcoins, those are essentially stored on the blockchain. Instead, Bitcoin wallets hold the private keys that give users the right to use those coins. Each Bitcoin wallet comes with at least two keys: one public, and one private. The keys then have their own role during transactions and mining.
Overall saying, blockchain is such a powerful technology by which we can share bitcoins with others with full transparency and tamper-free.
Since everything has its own advantages as well as disadvantages. This technology once come into the market can change the whole world. Many big companies like IBM are working on this technology and to introduce it into business work as well as many other sectors. While in the other place, if anyone can attack or damage the blockchain creation tools on a private corporate server, he can effectively control 100 percent of the network and alter transactions. This has a set of particularly profound adverse implications during a financial crisis or debt crisis. Also, we have seen a lot of stealing of cryptocurrencies by the hackers.
Let’s see what this emerging technology- the Blockchain can do and can change this world and will take this world to a new level of technology.