Understanding Blockchain Technology
What is a Blockchain?
A blockchain is nothing but a chain of blocks(generally records), as the name suggests. Not how you are imagining pictorially, but it is a P2P network used to store records whose main purpose is to maintain system integrity by eliminating all kinds counterfeiting techniques. From a Peer-to-Peer Network (P2P) one can understand that all the users have the same powers and all the transactions done are visible at all stages, thus eliminating the need of a central authority.
Blockchain technology is the essence of cryptocurrency, which is nothing but a collection of data which is designed to work as a medium of exchange. These digital assets are the foundation of today’s capital and tomorrow’s finances. Thus, the need to understand how this technology works is quite relevant.
How transactions take place in a blockchain?
Blockchain uses the concept of hashing, the purpose of which is to encrypt the details so that a hacker is not able to read or alter the data. Hash is similar to a person’s fingerprint, except that these change every time a change is made in the block so that the integrity is maintained.
Let’s consider a scenario:
Suppose Chandler and Pheobe want to send Joey 5 Bitcoins.
Transaction t1: Chandler → Joey
Transaction t2: Pheobe → Joey
For a transaction to take place, a block needs to be created. The transaction details are permanently inscribed in this block. Since it is a decentralized network, so the changes made are visible to all users in the network, which makes it difficult to hack. Here two transactions are taking place, hence two different blocks will be generated. These consecutive blocks are tied up, hence the alias “chain” , forming a public distributed ledger. Hence this ledger is available to Chandler, Pheobe and Joey.
The block contains the transaction details, hash of the current block and hash of the previous block. The blocks are connected via hash to the previous block.
Whenever a transaction is made, or a change is done, the hash gets altered, thereby breaking the chain for a small duration. The process of verification happens during that time, it is technically termed as, “Proof Of Work”. After the verification is done, the hash value gets updated and the connection between the blocks is made.
Who can perform this validation?
Such transactions are made all over the globe, the people who validate these transactions are known as miners. For a block to be validated and added to the chain, miners need to solve a complex mathematical problem. The one who solves that problem quickest gets 12.5 Bitcoins, as a reward. This process is known as mining.
Like, many of you may remember the show, “The Big Bang Theory” how the guys forgot about the bitcoins they mined seven years ago, when they were not even worth a penny. Years later, they wish they could have learnt the value of cryptocurrency back then.
Understanding the concept of keys
Every user in a blockchain has two types of keys. One of them is a private key, which is confidential and the other one is a public key, which is visible to the world.
Let’s suppose that the guys would have been successful in getting back some Bitcoins . Assuming, Leonard wants to make a transaction of 1 BTC to Penny.
Transaction: Leonard → Penny
For making this transaction, Leonard sends his and Penny’s wallet address through an hashing algorithm, these details are encrypted using encryption algorithms and Leonard’s private key, which ensures that the transaction was done by Leonard. This is now transmitted across the world, using Penny’s public key. She can now decrypt the message by using her own, i.e. Penny’s private key, which only she knows.
Thus, the need of the hour is to ensure transparency in the digital era. Blockchain will help in maintaining integrity and making sure that unethical practices are kept at bay.
