Stepping Into Blockchains? It’s Time To Know the Basics…
There’s a huge fuss surrounding Blockchains nowadays. Many people talk about it but only a few have a real understanding of it. So today let’s dive into Blockchains.
What is a blockchain?
Blockchain is a decentralized distributed ledger system that makes any digital asset’s records transparent, unchangeable and operational without the use of a third-party intermediary. Simply saying, as the name indicates, a blockchain is a chain of blocks that contains information where any information in the previous blocks cannot be altered.
One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information.
Blocks have certain storage capacities and when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain.
History of Blockchain
It is widely believed that the first implementation of modern-day blockchain technology came from Satoshi Nakamoto. In 2008, a person or group of people identified as Nakamoto published a paper, “Bitcoin: A Peer-to-Peer Electronic Cash System” which hypothesized a direct online payment from one party to another without the use of an intermediary third-party.
So, a blockchain was created by a person (or a group of people) using the name (or pseudonym) Satoshi Nakamoto in 2008 to serve as the publicly distributed ledger for bitcoin cryptocurrency transactions, based on previous work by Stuart Haber, W. Scott Stornetta and Dave Bayer.
Key features of Blockchain technology
The best way to understand the importance of Blockchain technology is to understand its key features, which are immutability, transparency, digital freedom and true decentralized service, and better security.
Immutability
Blockchain is immutable. This means that the data included within the Blockchain is permanent; one cannot remove, change or undo it. There is no chance of editing or altering the data.
Transparency
There are different types of Blockchains. Which are Public Blockchain networks, Private Blockchain networks, Permissioned Blockchain networks and etc. Public Blockchain provides full transparency. Anyone can join these networks. Organizations and corporations around the world can use a public blockchain to create a completely decentralized network with no need for centralized authority, thus boosting overall system transparency.
Digital freedom and true decentralized service
As humans, we always enjoy freedom. Most of the entities in the world offer us many valuable services, but at the cost of taking away our freedom. Take your bank as an example. They have the option to halt your transactions or take control of your account. These things happen in the real world. Blockchain on the other hand has no centralized authority. With blockchain, you can feel true freedom.
Better security
This is the main reason why most people prefer Blockchain. Blockchain uses cryptographic methods to add a layer of security to the data stored on the network. To safeguard the data and systems on the blockchain network, cryptography makes use of complex mathematical methods. Additionally, every block on the network has a distinct hash, making it impossible for hackers or malicious actors to alter or fake any data on the network.
What is Hashing?
Hashing is the process of scrambling raw information to the extent that it cannot be reproduced back to its original form. It takes a piece of information and passes it through a function that performs mathematical operations on plain text. This function is called the hash function, and the output is called the hash value/digest. So, hashing means taking an input string of any length and giving out an output of a fixed length.
Distributed p2p network
Peer-to-peer network, commonly known as P2P is a decentralized network communications model that consists of a group of devices (nodes) that collectively store and share files where each node acts as an individual peer. In this network, P2P communication is done without any central administration or server, which means all nodes have equal power and perform the same tasks.
With the distributed peer-to-peer network, anyone wishing to participate in verifying and validating blocks can set up a Bitcoin node.
What is a smart contract?
Smart contracts are simply programs stored on a blockchain that run when pre-determined conditions are met. Typically they are used to automate the execution of an agreement, so that all the participants can immediately be certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.
How a smart contract works
Smart contracts operate by executing simple “if/when…then…” statements written into blockchain code. When predetermined conditions are met and verified, a network of computers executes the actions. These actions could include transferring funds to the proper parties, registering a vehicle, sending notifications, or issuing a ticket. When the transaction is completed, the blockchain is updated. This means that the transaction cannot be changed, and the results are only visible to parties who have been granted permission.
Why smart contracts were needed?
On the blockchain, the goal of a smart contract is to simplify business and trade between both anonymous and identified parties, without the need for a middleman. A smart contract scales down on formality and costs associated with traditional methods, without compromising on authenticity and credibility.
Smart contracts are essentially programs that run when criteria are fulfilled and are stored on a blockchain. They are usually used to automate the execution of an agreement so that all parties can be certain of the results right away.
Pros & Cons of blockchain technology
Like all types of technologies, Blockchain technology also has several advantages and disadvantages to take into account. Let’s go through the advantages first.
Pros
Blockchain can protect and secure sensitive data from online transactions thanks to its high level of security, which is one of its main advantages. Blockchain technology also provides quick and convenient transactions for those who desire them. In contrast to other transaction techniques, which can take several days to complete, it only takes a few minutes with blockchain. Additionally, there is no third-party involvement from governmental or financial entities which, many users view as a positive aspect.
Cons
Both public and private keys are used in cryptography and blockchain, and reportedly, private keys have caused issues. One drawback of blockchains is that if a user misplaces their private key, they are faced with several difficulties. The limitations on scaling that result from the cap on transactions per node are another disadvantage. As a result, completing many transactions and other chores can take several hours. Another significant disadvantage of blockchain is that information can be hard to add and cannot change once it has been recorded.
The connection between Blockchain & Cryptocurrency
Blockchain is the technology that enables the existence of cryptocurrency (among other things). Bitcoin is the name of the best-known cryptocurrency, the one for which blockchain technology was invented.
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References:
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