Hey, it's DANIYAL SHAIKH. Today I'm gonna show you the real concept behind the Blockchain. As per I think You have heard about the term Blockchain but didn't clear the concept behind it..so this article covers the basics behind it ...
Firstly, I would like to clarify this Article is not about Bitcoin, Bitcoin Investment or How to make Bitcoin rather it focuses on the underline technology which made bitcoin possible as well as popular in today's world.
Now, Blockchain is one of the biggest buzzes of the last quantum. Apart from the one of the most trending keywords Blockchain in itself is the technology that can be called The dark Host of all the technologies that have up come. It is a technology that does not come with the hangover of any previous technologies. Anyone can start with this technology and this is something that gone a be quite widely used across different domains.
What is Blockchain?
Blockchain is the technology that became quite popular after the implementation of the Bitcoin. Blockchain is simply a data structure where each block of the blockchain is linked to another block in a time-stamped chronological order.
So what is a block in the first space?
- What is Block?
Block is basically similar to a file wherein all the recent or validated transactions are stored which are not stored in any of the prior blocks. Basically, there are two things that the sentence makes up. Firstly, only validated transactions are stored in a block and you do not repeatedly store data on to the Blockchain. If a certain transaction detail is stored in a block then you could not be stored either in a previous block or upcoming block as well
The block of a Bitcoin blockchain can be referred to as a Ledger in itself. How we all have account based ledgers and passbooks? There are all the transactions have we performed:
-It may be ATM cash withdrawal
-It may be a cash deposit
-It may be a net transfer
each one of them is individually stored. However?
In the blockchain bitcoin ledger, the only difference being is that the details are stored with respect to everywhere across the world who uses bitcoin as a medium of transaction. In simple words, A block of bitcoin blockchain actually stores the details of the transactions of everyone across the glow using bitcoin as a means of transactions.
Can a block only store the Transaction Details?
- Definitely not !! Today Blockchain technology has envolved more than bitcoins or any cryptocurrency for that matter. It is something that can be used across different domains and will be seen how it's being used across different domains ahead as well.
- Blockchain Technology is the latest buzz in the industry Today and a lot of organizations are trying to understand this technology
- Blockchain or Bitcoin in itself is one of the most popular digital cryptocurrency and the first cryptocurrency is actually an implementation of the Blockchain Technology.
- It was introduced in a whitepaper on 31st October 2008 wherein, the world was facing the financial crisis and this paper actually an idea of how a decentralized cryptocurrency system can solve all the issues that being faced across the glow that time because during that Crisis its estimated to 11 trillion dollars are lost across the glow, that was a big amount!! So to resolve such problem this Blockchain is a solution created to does not happen this ahead.
- Blockchain is a continuously growing list of records called blocks linked together in time record manner and secured using cryptography technique.
If you are trying to storing the transaction details on your blockchain that time what you need to understand is that it's completely accessible to anyone across the glow. So in order to avoid manipulations, the use of various cryptography techniques which ensures that these details are not manipulatable as well as to the users are who are using this are completely anonymous and secured as well.
Why BlockChain?
Blockchain can be considered as a spreadsheet that is present on all the nodes present in the chain. The blockchain database isn’t stored in any single location, thus all the records stored are completely verifiable. More importantly, no centralized version of this information exists for a hacker to corrupt.
As represented in the diagram above, constantly growing blocks are recorded and appended to the existing chain of transactions in chronological order. Each node i.e. a computer connected in the network gets a copy of the blockchain, which is downloaded automatically. Every block contains a hash of the previous block. This hash represents information about various user addresses. It also contains the balances right from the genesis block to the recent block. One block may contain multiple transactions. Miners validate each block using certain algorithms. In return, miners are rewarded with bitcoins for successful validation.
Types Of Blockchains:
There mainly three types of Blockchains that have emerged after Bitcoin introduced Blockchain to the world.
- Public Blockchain
- Private Blockchain
- Consortium or Federated Blockchain
There are some more complicated types also such as
public-permission blockchain, private-permissioned blockchain, etc but I
will keep it simple for this discussion.
Now Let’s discuss all the three one by one.
- Public Blockchain:
A public blockchain as its name suggests is the blockchain of public, meaning a kind of blockchain which is-‘ for the people, by the people, and of the people’. Here no one is in charge and anyone can participate in reading/writing/auditing the blockchain. Another thing is that these types of blockchain are open and transparent hence anyone can review anything at a given point of time on a public blockchain.
But a natural question that comes to our mind is that when no one is in charge here than how the decisions are taken on these types of the blockchain. So the answer is that decision making happens by various decentralized consensus mechanisms such as proof of work (POW) and proof of stake(POS) etc.
Example: Bitcoin, Litecoin, etc On Bitcoin and Litecoin blockchain networks anyone can do the following things that make it truly public blockchain.
—> Anyone can run BTC/LTC full node and start mining.
—> Anyone can make transactions on BTC/LTC chain.
—> Anyone can review/audit the blockchain in a Blockchain explorer.
- Private Blockchain:
Private blockchain as its name suggests is a private property of an individual or an organization.Unlike public blockchain here there is an in charge who looks after of important things such as read/write or whom to selectively give access to read or vice versa. Here the consensus is achieved on the whims of the central in-charge who can give mining rights to anyone or not give at all.
That’s what makes it centralized again where various rights are exercised and vested in a central trusted party but yet it is cryptographical secured from the company’s point of view and more cost-effective for them. But it is still debatable if such a private thing can be called a ‘Blockchain’ because it fundamentally defeats the whole purpose of blockchain that Bitcoin introduced to us.
Example: Bankchain
In such types of blockchain:
—> Anyone can’t run a full node and start mining.
—> Anyone can’t make transactions on the chain.
—> Anyone can’t review/audit the blockchain in a Blockchain explorer.
- Consortium or Federated Blockchain:
This type of blockchain tries to remove the sole autonomy which gets vested in just one entity by using private blockchains.So here instead of one in charge, you have more than one in charge. Basically, you have a group of companies or representative individuals coming together and making decisions for the best benefit of the whole network. Such groups are also called consortiums or a federation that’s why the name consortium or federated blockchain.
For example, let suppose you have a consortium of world’s top 20 financial institutes out which you have decided in the code that if a transaction or a block or decision is voted/verified by more than 15 institutes then only it should get added to the blockchain.
So it is a way of achieving thing much faster and you also have more than one single point of failures which in a way protects the whole ecosystem against a single point of failure.
Example: R3, EWF
In such type blockchain:
—> Members of the consortium can run a full node and start mining.
—> Members of the consortium can make transactions/decisions on the chain.
—> Members of the consortium can review/audit the blockchain in a Blockchain explorer.
Why We Need Them:
After understanding all three different types I had a question that why do we need all of them?
I was also critical of that, private and consortium blockchains are
not even blockchains because I was comparing them with public
blockchains such as Bitcoin and Litecoin etc.
But after some more diligence and brainstorming, I could understand why we need the other two versions apart from the public one.
(whatever one may call them)
We require more types of blockchain because keeping such blockchains solves problems such as:-
- One no longer need to rely upon huge servers.
- They are cost effective and fast.
- They reduce the need for more trusted parties because you can implement smart contracts instead of them.
- Gives options for rights and access management while leveraging the same blockchain technology and reaping its benefits.
- Reduces redundant work.
- Distributed consensus between interested parties becomes fast even though you are geographically segregated.
Because of all these, I think different types of blockchain will be used for a different type of industries as and when required.
Where we require privacy and control, private & consortium blockchain will be a good option and where we require openness, as well as censorship resistance public blockchains, are a must need. And that’s why different people are discussing different use cases of the blockchain tech across various industry verticals.
Advantages of Blockchain:
- Transparency:
One of the prime reasons blockchain is intriguing to businesses is that this technology is almost always open source. That means other users or developers have the opportunity to modify it as they see fit. But what's most important about it being open source is that it makes altering logged data within a blockchain incredibly difficult. After all, if there are countless eyes on the network, someone is probably going to see that logged data has been altered. This makes blockchain a particularly secure technology.
- Reduced Transaction Costs:
As noted, blockchain allows peer-to-peer and business-to-business transactions to be completed without the need for a third party, which is often a bank. Since there's no middleman involvement tied to blockchain transactions, it means they can actually reduce costs to the user or businesses over time.
- Faster transaction settlements:
When it comes to traditional banks, it's not uncommon for transactions to take days to completely settle. This is due to protocols in bank transferring software, as well as the fact that financial institutions are only open during normal business hours, five days a week. You also have financial institutions located in various time zones around the world, which can delay processing times. Comparatively, blockchain technology is working 24 hours a day, seven days a week, meaning blockchain-based transactions process considerably more quickly.
- Decentralization:
Another central reason blockchain is so exciting is its lack of a central data hub. Instead of running a massive data center and verifying transactions through that hub, blockchain actually allows individual transactions to have their own proof of validity and the authorization to enforce those constraints. With information on a particular blockchain piecemealed throughout the world on individual servers, it ensures that if this information fell into unwanted hands (e.g., a cyber-criminal), only a small amount of data, and not the entire network, would be compromised.
- User-controlled Networks:
Lastly, cryptocurrency investors tend to be really encouraged by the control aspect of blockchain. Rather than having a third party run the show, users and developers are the ones who get to call the shots. For instance, an inability to reach an 80% consensus on an upgrade tied to bitcoin's blockchain is what necessitated a fork into two separate currencies (bitcoin and bitcoin cash) more than four months ago. Having a say goes a long way with investors and developers.
Disadvantages of Blockchain:
- Performance:
Because of the nature of blockchains, it will always be slower than centralized databases. When a transaction is being processed, a blockchain has to do all the same things just like a regular database does, but it carries three additional burdens as well:
Every blockchain transaction must be digitally signed using a public-private cryptography scheme such as ECDSA. This is necessary because transactions propagate between nodes in a peer-to-peer fashion, so their source cannot otherwise be proven. The generation and verification of these signatures are computationally complex and constitutes the primary bottleneck in products like ours. By contrast, in centralized databases, once a connection has been established, there is no need to individually verify every request that comes over it.
In a distributed database such as a blockchain, effort must be expended in ensuring that nodes in the network reach consensus. Depending on the consensus mechanism used, this might involve significant back-and-forth communication and/or dealing with forks and their consequent rollbacks. While it’s true that centralized databases must also contend with conflicting and aborted transactions, these are far less likely where transactions are queued and processed in a single location.
-Redundancy:
This isn’t about the performance of an individual node, but the total amount of computation that a blockchain requires. Whereas centralized databases process transactions once (or twice), in a blockchain they must be processed independently by every node in the network. So lots more work is being done for the same end result.