A Beginners Guide to Blockchain
A Blockchain is a distributed database, which means that the storage devices for the database are not all connected to a common processor. It maintains a list of all the records, called blocks. Each block has a timestamp and a link to the previous block.
What exactly is Blockchain?
At a high level, it is just a chain of blocks. The digital information is divided into blocks and then linked together. Cryptography ensures that the users can only edit the data of the Blockchain that they own. Ownership of the data is possessed by possessing the private keys necessary to use and write to a file. This way everyone’s copy of the distributed Blockchain is synchronized.
Take an example of a digital media record: each entry is a block. It has a date, timestamp, and the time when the record was created. That entry cannot be changed retroactively, because we want the record of diagnosis, treatment, etc. to be clear, unchanged and unmodified. Only the patient and the doctor have unique private keys that can access the information. The information can only be shared if one of the users shares his or her private key with a third party. This describes a Blockchain for the medical database.
Each of these blocks contain a set of characters which is called hash. Hash is derived from the information contained in the block.
They are secured databases by design. The concept of Blockchain was first introduced by Satoshi Nakamoto, back in 2008. Then it was implemented for the first time as a part of the digital bitcoin currency a year later. It serves as a public ledger for all the bitcoin transactions. By using this technology, bitcoin was the first digital currency that solved the problem of double spending without the use of an authoritative body or central server.
How does Blockchain really work?
Generally, called the “internet of value”, allows anyone to send value anywhere in the world where the Blockchain file can be accessed. But to access only the blocks that one owns, he must have a private cryptographically created key. One can transfer the value or whatever is stored in that section of the Blockchain by giving a private key to the third party.
If we take bitcoins as an example, keys are used to access addresses, which contain units of currency that have financial value. This prevents the indulgence of any intermediary, generally banks, in recording the transfer.
Blockchain networks have more than one functionalities. Bitcoin is a digital currency as well as a payment system. The tamper-proof blocks hold the ledgers of all the transactions. The people who sacrifice their computers are called miners and they get rewarded in bitcoins. Etherium too is a Blockchain having additional functionalities. Bitcoin and Etherium are public Blockchains as they can be accessed by anyone, and can be a part of it.
A private Blockchain, on the other hand, provides only the owner to have the rights on any changes that have to be done. This could be seen as a similar version to the existing infrastructure wherein the owner (a centralized authority) would have the power to change the rules, revert transactions, etc. based on the need. This could be a concept with huge interest from FI’s and large companies.
Why is Blockchain Important?
We all are now used to sharing information through a decentralized online platform, the internet. But when it calls to transfer some value, we all depend on the old school, centralized financial establishments like banks. Even the online payment methods that have sprung up lately, requires the integration with a bank or credit card to be useful.
Blockchain technology offers the intriguing technique of eliminating the so-called “middleman”. It does this by filling three important roles:
- Recording Transactions,
- Establishing Identity, and
- Establishing Contracts.
This has huge implications because, worldwide, the financial services market is the largest sector of industry by market capitalization. Replacing even a fraction of this with a Blockchain system would result in a huge disruption of the financial services industry, but also a massive increase in efficiencies.
The best part about the Blockchain technology is that it is a decentralized system that exists between all permitted parties. This skips the process of contacting a middleman. It saves you all the time and the conflict. Despite all its problems, the Blockchain technology is cheaper, faster, and more secure than the traditional system, the only reason why banks and governments are turning to them.
A legal scholar and a cryptographer, Nick Szabo, in 1944, that this aforementioned decentralized ledger could be used for smart contracts. Also called self-executing contracts, Blockchain contracts, or digital contracts could be converted to computer code, replicated and stored on the system. They are then supervised by the network of computers that run the Blockchain.
Smart contracts while preventing the indulgence of a middleman help in exchange of money, property, shares, or anything else of value with utmost transparency and in a conflict-free way.
Compare the technology to a vending machine. Ordinarily, one would go to a notary, or a lawyer and pay the fees for a document to get prepared. Nut with smart contracts, you just need to drop a coin into the vending machine (i.e. ledger), and the document will get prepared.
Hindrances in the Application of Blockchain
- There are no international standards for this technique.
- Most people in the technical background do not know what this technique actually is, and even if they know, they are not familiar with the in-details.
- The novelty of this technique needs time to mature and vary in their applications.
- Data management in a decentralized environment and the fear of the governments of the world from this point, so some governments are trying to control this at the present time, so as not to cause future problems.
- Resistance to change.