August 18, 2019
blockchain-technology

What is Blockchain Technology

By on May 8, 2019 0 566 Views

What is blockchain?

Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin, which was launched in 2008 and more recently Etherum. Blockchain is an accounting ledger operating in the digital domain, similarly to a company’s cash accounting book. However, it allows for the recording and sharing of transactional information publicly within the network. Blockchain stores and transmits data via linked blocks that expands over time. Each block contains data on initialization time and is connected with the previous block. This transmission system is based on an extremely complex encryption system, consisting of multiple independent nodes capable of authenticating information except requiring a “common sign of trust”. This node system is a sequence of independent servers, where all users need to approve a transaction before it can be validated and logged into the network.

Why called blockchain?

In a company, to manage the ledger, it usually requires a competent person to take responsibility for checking all the data and verifying by signing their signature at the bottom of the content. This signature ensures that no one will be able to edit the archived content and is an indication that the data added later will not be accepted. Similarly, in the blockchain system, transaction log information is stored in a file called a block. These records are stored in a cabinet and stacked sequentially, the front block is followed by the next block forming a chain of block called blockchain.

How blockchain works?

Anyone has the opportunity to add a new trading block to the accounting ledger, provided that the cryptographic puzzles that the system provides are dealt with. The volunteers involved in solving these puzzles are called Miner, with the tool being a standalone server system. The miners will collect transaction information in the blockchain network every 10 minutes. That information is considered a ticket that allows the miners to enter a contest. Whoever wins will be entitled to create the next new block. After that, the miners will update the blockchain copy and start on another competition. The reward for the winning miner or answer to the current puzzle is 12.5 Bitcoin (Vinay Gupta, 2017). This is also the reason that blockchain technology is expected to dominate the world in a few years.

Now let us demonstrates this impact in our real live by studding the scenario bellow which will be described under two levels (functional and technical)

Now let us demonstrates this impact in our real live by studding the scenario bellow which will be described under two levels (functional and technical)

Functional level

For example, if Alice pays to Bob $10. why would it go through a bank? Take a look at Figure 1 bellow (Transaction through an intermediary vs. peer-to-peertransaction)

Blockchain
Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin,

Let us look at a different example now. A typical stock transaction happens in seconds, but its settlement takes weeks. Is it desirable in this digital age? Certainly not! Figure 2 (Stocks trading through an intermediary clearing house) bellow demonstrates the current situation.

Blockchain
Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin

If someone wants to buy some stocks from a company or a person, they can just directly buy it from them with instant settlement, with no need for brokers, clearing houses, or other financial institutions in between. A decentralized and peer-to-peer solution to such a situation can be represented as in Figure 3 (Peer-to-peer stock trading)bellow.

Blockchain
Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin

Please note that transaction and settlement are not two different entities in a blockchain setting! The transactions are analogous to, say, fiat currency transactions where if someone pays another a $10 note, they do not own it anymore and that $10 note is physically transferred to the new owner.

Technical level

Assume that there are four candidates—Alice, Bob, Dave, and Charlie—who are doing some monetary transactions among each other on a blockchain network. Let us go through the transactions step by step to understand blockchain’s open and decentralized features.

Step-1:

Let us assume that Alice had $50 with her, which is the genesis of all transactions and every node is aware of it, as shown in Figure 4 (The genesis block).

Blockchain
Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin

Step-2:

Alice makes a transaction by paying $20 to Bob. Observe how the blockchain gets updated at each node, as shown in Figure 5 (The first transaction).

Blockchain
Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin,

Step-3:

For instance Bob makes another transaction by paying $10 to Charlie and the blockchain gets updated as shown in Figure 6 (The second transaction).

Blockchain
Blockchain is a data-sharing infrastructure used to create peer-to-peer digital currency, the most famous of which is Bitcoin,

Please note that the transaction data in the blocks is immutable. All transactions are fully irreversible. Any change would result in a new transaction, which would get validated by all contributing nodes. Every node has its own copy of blockchain.

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