This article is a brief introduction to the world of Blockchain. You might have read Blockchain related articles or come across discussions on how Blockchain is going to change the world. Centralised institutions are either defensive or accepting of this disruption by defining their own terms.
So, what is all the fuss about? Let’s understand blockchain in its raw form.
Blockchain is a distributed database system. This means instead of storing files on a single computer, information is stored across millions of computers all over the globe.
FACEBOOK AS A CENTRALIZED ENTITY
When we log in to Facebook, all the content that we and our friends share on Facebook are stored in Facebook’s central server. Facebook technically owns all that data (even though they claim that they don’t own our data); they use that data to directly target ads towards us.
Blockchain technology disrupts this and gives users the power to control their personally identifiable information.
DECENTRALISED, DISTRIBUTED AND CENTRALISED SYSTEMS
The diagram shows three images sourced from Wikipedia.
The first image depicts a centralised repository like Facebook, Google, Amazon, etc. where one central entity controls all information.
The second image is a decentralised system where a few nodes maintain the solidarity of the network through mutual consent yet allow free nodes to live by storing minimal data.
The third image is a distributed system where each node on the network will absolutely need to store all the information that is present in the network.
In the first image, if the central node is compromised, the whole system breaks down. But in decentralised and distributed systems, these kinds of attacks are impossible as at any given point in time, there are multiple copies of information throughout the network.
Well, the below example will clarify this concept.
Suppose Alice is transferring $100 to Bob via a traditional bank transfer. They both have an account in the same bank. When Alice initiates the transaction, the bank has a central database which deducts $100 from Alice’s account and adds $100 to Bob’s account. Now, this isn’t an ideal scenario because banks usually charge transaction fees
If something happens to the bank’s central database and that transaction is lost, neither Alice nor Bob get the $100. There are backups and safeguards in traditional banks to help prevent this, but this is still a very valid scenario. In case of a cyber-attack, all our funds in centralised servers are at tremendous risk. We as account holders, acknowledge and accept this risk because of the trust we have in these banking institutions.
Now, what if I told you, blockchain prevents all of this by creating a decentralised value exchange system with 100% uptime and a distributed trust system which is extremely difficult and highly improbable to crack.
In a distributed ledger system, once Alice initiates a transaction, all the nodes in the network confirm the transaction and the ledger is written in stone. It is immutable, and the transaction is secured. Even if an attacker tries to compromise one node, the transaction is still present in another node and to modify the transaction only in one node is still extremely difficult.
To change the details of one transaction, the attacker must modify all the following transactions in hopes of generating an alternate chain faster than the honest chain which is being processed by miners. Miners are facilitators of the transactions in the blockchain. They verify each transaction that comes across to their respective nodes by solving computationally difficult and processor intensive puzzles. The attackers’ transactions will not go through as honest nodes will reject transactions and blocks that are invalid. The attacker needs ample processing power to overcome the cumulative processing power of honest nodes which is highly improbable to achieve in well-established blockchain systems.
We will discuss more on Mining along with Public Keys and Private Keys (your crypto username and password) in future posts.
Blockchain, as the name suggests, is a chain of blocks that are linked together one after the other. All nodes on the network have the full replication of all transactions that have taken place on the blockchain ever since the genesis block was mined. The ledger is open and the transaction between accounts will be displayed on the ledger for the whole world to see.
The transactions are cryptographically encrypted and the digital signature of one block is used to encrypt the next block. This is a perpetual system and to modify one transaction in the ledger is impossible. If an attack is tried, cryptographically encrypting all future blocks is computationally and economically a very expensive task.
We hope you now have a basic idea of what blockchain technology is all about. The implications of this technology are far and wide and will soon be at the helm of all trust-based systems.
BLOCKCHAIN – AS MANY HAVE PREVIOUSLY SAID, IS THE NEW INTERNET.