How do you make sure that what you buy or sell isn’t fake? When it comes to digital money, how can you be sure that you’re not being swindled out of your hard-earned cash? Thanks to blockchain technology, this process just got a lot easier — and a lot more trustworthy.
Blockchain simply isn’t only about cryptocurrency but beyond that about the future of the internet, right to privacy and it has potential to address many flaws in the financial system, security identification, voting etc.
The concepts behind blockchain are fascinating, but they can be pretty complicated, so we’ve put together this guide on what blockchain technology is and how it works in order to help you get started with this evolving fascinating technology. So let’s dive into this evolving topic. Enjoy!
Table of Contents
A Brief History of Blockchain
In 1991 a cryptographically secured chain of blocks was described for the first time by Stuart Haber and W Scott Stronetta. You can’t discuss the history of blockchain without starting discussion about bitcoin. In 2009 the first blockchain as the public ledger for transactions knows as bitcoin, it was implemented by Satoshi Nakamoto, whose true identity is still unknown.
In 2008, a person or group of people using the name Satoshi Nakamoto published a paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. In it, Nakamoto described a new digital currency that did not rely on third parties for processing transactions, with all transactions stored in an ever-growing public ledger known as a blockchain. Over time, more applications were developed and became powered by blockchain technology. From 2012 to 2017, venture capital firms invested approximately $1 billion into early-stage blockchain companies. Currently, there are hundreds of cryptocurrencies and thousands of different applications being built on top of blockchain technology. Some estimates show there will be 10 million unique users who have wallets that support cryptocurrency transactions by 2018. The most important thing about blockchain technology is that it’s decentralized—there isn’t one server like you might see at your bank. Instead, every computer running a node (which could be any PC connected to the internet) holds part of a shared public ledger called a blockchain. Every time someone wants to make a transaction, they broadcast their intentions to update parts of their copy of that shared database which are then validated and added by other computers (nodes) in their network; essentially anyone whose node receives new information can review those changes and validate them if they haven’t been tampered with before integrating them into their own copy of what was previously distributed data—creating an entirely new sequence (and version) of events! This validation process makes it difficult to compromise or corrupt records, making hacking much harder. It also allows copies of all records or ledgers to be kept securely in multiple locations instead of requiring access to each individual centralized location. Essentially, blockchains allow entire databases to exist simultaneously in multiple locations without any central authority that has control over how those databases interact with each other. If anything happens, blockchains work so long as two-thirds of all participants agree on what happened despite attempts from bad actors within the network attempting to corrupt said record(s). Importantly, blockchains aren’t perfect.
Why Is It Called Blockchain?
The name blockchain comes from its literal definition: a chain of blocks. If you’re wondering why we don’t just call it a block chain, that’s because each block contains different types of data and needs to be treated differently. Some contain digital currency transactions; others are able to contain smart contracts which are very similar in concept to traditional legal contracts except they can self-execute when certain conditions are met. If a contract contains logic, anything written into it will automatically execute once those conditions have been satisfied—it will happen without human interaction or oversight. Think about that for a moment. Automation could have never previously been put into an agreement like that. Now you can truly trust an agreement will work exactly as specified if every single detail is laid out properly. It’s revolutionary! Who Created Blockchains?: Blockchain technology was created by Satoshi Nakamoto who started publishing research papers on it in 2008. He unveiled Bitcoin, a cryptocurrency based on blockchain technology, on January 9th 2009 at 11 pm GMT after a period of six years worth of research. At first, many people didn’t believe he actually existed so major newspapers were contacted requesting any information they might have received regarding his identity. Later he gave public talks to crowds asking him questions about his identity but he declined to disclose any information even going so far as wearing sunglasses and speaking through an anonymous voice modulator device making his true identity impossible to determine whether he was real or not.
Let’s understand it by simply breaking the word “BLOCKCHAIN” into Block and Chain
What are blocks?
When it comes to blockchain, the blocks are what makes it up. SImply, blocks are just a collection of data/records. For example In terms of bitcoin the data is just the list of transactions, in the case of Ethereum it can be a list of transactions, smart contracts and other things also.
Blocks also have limits so they can’t have so many records in them, and we need to keep adding more blocks. When the blocks are filled we add them into the network and to add them to the network we do something called “mining”. And since blockchain have a “proof of work” model we need to prove that we mine them and this brings us to the next thing known as Hashing Function, blockchain uses SHA-256 hashing functions. SHA stands for “Secure Hashing Algorithm”. Important thing is if we change the input a little bit, it changes the output a lot!
You can use this tool to play around with SHA-256 encryption.
What is the chain part?
When the blocks are filled they’re linked to the last block to it. It adds the last block to its previous block and that hash is actually used to calculate the previous block’s hash.
This way every block has a summary of each block before it. If we want to go back and change something, we would be changing 30 summaries!
That means we can’t go back and change something. If we did, everyone else on the network could instantly see that someone has a bunch of fake summaries.
So, in short, blockchains are simply a collection of information that can’t be tampered with once it’s in a block.
How Does Blockchain Work?
A block in a blockchain represents a transaction between two parties. The block includes information about when (the when really depends on how many transactions have been made since last year), what and where (geographically) of each transaction as well as its hash (more about that later). The transactions are permanently embedded into a chain of previous blocks and secured with cryptographic functions. In order to modify or manipulate any data inside a block, you would need to be able to reverse-engineer it using computational power. This means that changing one piece of data could have ripple effects through all other connected blocks. Once you’ve got your head around hashes, blocks and cryptocurrencies – at least on a basic level – you’re ready to start learning more specific subjects such as distributed ledgers, smart contracts, proof-of-work and proof-of-stake. But to get there, let’s go back. Blocks: These used to be called coins until they split into separate entities capable of trading without interference from one another; now we know them as tokens. So what is a token exactly? We mentioned Bitcoin earlier which has become an internationally accepted cryptocurrency; tokens are similar but exist for use only within certain applications and/or business models. Tokens may represent products, voting rights, shares and loyalty points among other things. More importantly than their intended function is what happens when these tokens are traded between users during their lifetime; every exchange leaves a trace on public ledgers making them easily trackable. Also unlike fiat currency, new tokens cannot be created out of thin air by anyone who has a computer and some coding knowledge; all new tokens are generated automatically based on fixed algorithms at predefined intervals.
Ledger: This simply refers to a record of transactions although digital wallets or electronic ledgers differ from traditional paper ones in that digital records are stored securely within networks rather than held locally by banks or governments. Where blocks connect transactions across multiple chains over time, ledgers keep track of transactions taking place simultaneously across different platforms including computers, smartphones and even Internet of Things devices like refrigerators and cameras. It’s also worth noting that while blockchains can change hands multiple times over their lifetimes, once ledger records are posted online they’re considered permanent so double check before sending! Okay, so hopefully now you’ve got a basic understanding of blockchains, tokens and ledgers and feel confident enough to explore each subject further. As I’m sure you’ve guessed, trying to understand blockchains requires a lot of reading! we’ll explore about it more in the upcoming posts.
What are the Uses of Blockchain Technology?
Blockchain technology has many uses, including but not limited to: Decentralized storage. Blockchain applications (DApps) run on a distributed network of computers around the world. To be specific, each computer stores a local copy of all transactions that have occurred in their respective ledgers. This decentralized model ensures that no one entity can control access to data or tamper with records without approval from other nodes. Companies like Storj and Sia offer secure cloud storage solutions that run on blockchain technology. Healthcare. Over half of healthcare professionals are actively working with blockchain projects aimed at securing electronic medical records and streamlining health care payments. In fact, IBM—an early leader in blockchain development—sees a $200 billion market opportunity for healthcare alone. Supply chain management. By eliminating intermediaries and enabling end-to-end transparency, blockchain can reduce friction points within supply chains while improving product traceability and visibility into production processes. Digital identity. Blockchain allows users to remain anonymous while still providing irrefutable proof of who they are online by permanently linking their online persona with their real identity on an immutable ledger. Some services allow users to store copies of passports or driver’s licenses on their account so others can easily verify who they say they are when interacting online or over mobile devices. Smart contracts. Smart contracts allow two parties to exchange money, property, shares, or anything of value automatically once certain conditions are met. The trustless nature of smart contracts makes them especially useful for applications in insurance, banking, trading platforms and more as well as government compliance tasks such as managing benefits programs and filing taxes. Energy trading & grid infrastructure . Winding Tree is a nonprofit building a global marketplace based on blockchain that seeks to disrupt today’s aviation and hotel industry leaders by creating an open source travel distribution platform where anyone can sell airline tickets directly alongside major brands such as Delta Air Lines without having to pay high fees.
Challenges Faced by the Technology
The speed of transaction processing has been an obstacle, but newer blockchain implementations are resolving that. In October 2016, Ripple announced a partnership with four banks to create a decentralized network for global payments. The new blockchain allows transactions to process 24/7/365 and promises to bank the unbanked around the world. Their implementation has reached 1,500 transactions per second (TPS), compared with Ethereum’s 20 TPS and Bitcoin’s 3 TPS. According to Primavera De Filippi, co-founder of blockchain governance project DAO Hub: It seems obvious now that blockchains can handle transactions more efficiently than traditional financial systems. Other challenges include trust; it might take time for consumers and businesses alike to accept cryptocurrencies as payment. However, some retailers like Microsoft and Overstock have already made significant strides in accepting bitcoin as payment from customers around the globe. Imagine what will happen when blockchain payments become mainstream. Supply chain management is another promising use case for blockchain technology. Currently, all parties within a supply chain often must wait until each other has reported about shipping before any action can be taken—but blockchain technology could enable real-time information sharing among supply chain participants so everyone knows where goods are and how they should be routed from one port to another (and where delays occur). How do you feel about putting your own business on a blockchain ledger? That’s exactly what Sarah Burroughs proposes in her book Decentralized Business: A Revolutionary Approach to Sustainability . Rather than build individual corporate initiatives and market them under brands or names, she writes, companies need to band together as ecosystems. To be successful, companies will need not only innovative ideas but also shared standards.