Understanding Blockchain Technology.

This article gives a brief explanation about what blockchain technology is about, architecture of blockchain, and advantages of blockchain.

19 November, 2022

Contributors

Akshaya Chanchala

@akshaya101

Introduction

In this article we will discuss about what Blockchain is, how it works, where it is used and much more.

When we talk Web 3.0, we talk about concepts like anonymity, decentralization and immutability. To meet the goals of Web 3.0, we use a technology known as Blockchain. Blockchain technology allows us to implement the rules of Web 3.0 in real time.

What is Blockchain?

Blockchain is a shared, distributed and permanent database that is shared among multiple nodes in a computer network. Data is recorded on Blockchain in such a way that it is almost impossible to hack or modify the system.

History of Blockchain

In the year 2008, a person named Satoshi Nakamoto, who is considered as the inventor of Blockchain Technology published a research paper called as "Bitcoin: A Peer-to-Peer Electronic Cash System". The abstract of the paper was to introduce a way to carry out transactions directly online without relying on a third-party source. This paper proposed an electronic payment system based on the concept of cryptography. It also discussed about the concept of public ledger where all the transaction details can be traced and kept track off making the network open and transparent.

This paper led to the start of many open sources programs who wanted to implement the Bitcoin System of transaction. Although the inventor of Bitcoins remains unknown, people still carry out working on building such a decentralized network. Two most popular decentralized networks are the Bitcoin Network and the Ethereum Network.

Terminology Frequently Used

Frequently used terms while learning about Blockchain Technology :

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Distributed Ledger Technology : Distributed Ledger Technology (DLT) is a protocol that enables the secure functioning of a decentralized digital database. Blockchain Technology can be referred to as Distributed Ledger Technology.

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Decentralization : Transfer of supervision and decision-making from a centralized association (individual, corporation, or group of people) to a dispersed or distrubuted network.

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Consensus : A consensus mechanism is a fault-tolerant mechanism that is used achieve the necessary agreement on a single data value or a single state of the network.

Core Components of Blockchain Architecture

The goal of blockchain technology is to create a decentralized, distributed form of network inorder to facilitate open, secure, trustless and peer-to-peer communication. Some of the core components of blockchain architecture are :

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Block : A block is a place where data related to a particular transaction is stored. It consists of transaction data, hash and a previous hash. A block has to be validate before it can be added to the network.

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Chain: A infinte, virtual chain that connects all the blocks. Hash achieved for each block will be used to connect to the next block.

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Node : User or a computer within the network. Each node has its own copy of the whole blockchain ledger.

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Miners : Specific nodes which perform the block verification process before adding anything to the blockchain structure.

How do they all work?

As soon as the user initiates a transaction over the network, a block will be created containing the transaction's data. Upon creating the block, a request to include it to the chain is conveyed to all the other nodes in the network, the nodes are responsible for verifying the new block and adding it to the blockchain.

To add a block to the chain, a consensus must be reached, and the validation procedure is carried out according to the consensus. Consensus can be reached through several methods, such as Proof of Work, Proof of Stake, and Proof of Authority. The process of verifying and adding blocks to a blockchain ledger is known as mining.

In a Proof of Work Consensus Mechanism, Block rewards are given to miners who verify and validate blocks. Once the block has been verified and assigned a unique hash value, it must be added to the blockchain. The new block is added to the end of the open blockchain.

As part of the verification process of the block using the consensus mechanism, the hash value from the previous block is added to the new block. Upon successful addition of the block to the blockchain, the network nodes are informed about the new block, thus completing the transaction.

Advantages of Blockchain

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Blockchain technology has the power to change the way Financial Institutions function in the current day and age. With the trustlessness and decentralized aspects of blockchain, Decentralized Finance can become the next biggest thing in the near future.

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Since blockchain does not have any central point of failure due to its decentralized network, it can withstand any security attack. Blockchain’s peer-to-peer connections help to identify fraud activities in the network and distributed consensus.

Industries that are currently using Blockchain Technology

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Finance and Bank Industry : Blockchain offers a secure and a cost-effective way of carrying out transactions by removing the third-party intermediaries, thus reducing the fees and processing time when compared to traditional bank transfers.

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Medical Industry : Data can be used by health scholars in the future for research by using distributed ledger technology, for instance in the secure transfer of medical records, tracking medical supplies, and storing data.

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Real Estate Industry : A blockchain-based system facilitates secure data sharing, keeps track of rental collections, eliminates middle men and provides payments to the property owners as well as ensuring contracts are honored.

Conclusion

Blockchain is much more than a new technology, it has the potential to reshape how the world works. Blockchain encourages the idea of ownership, openness and transparency. It encourages the themes of individuality and ownership at its core by breaking down the rules set by centralized institutions and giving a chance to the users to read-write-own their content. Blockchain touches on many aspects of Web that people must read, understand and have discussions about inorder to gain better understanding.

Here are some of the resources that I followed through inorder to learn about Blockchain :

📖 Something to Read

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Introduction to Blockchain

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Introduction to Web3

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Bitcoin Whitepaper by Satoshi Nakamoto

🎬 Something to Watch

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Blockchain 101 - A Visual Demo

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