Blockchain for beginners in 5 minutes
A simple but informative guide to understanding blockchain technology.
I started my cryptocurrency ( Bitcoin) journey when I was in college. Back then I had no inkling of what “mining” meant, the details of how my money was going to increase and if what I was investing in was even a scam or not. What I did know through hearsay was that investing my hard earned cash into it was going to reap great rewards. (P.S. I forgot my password so lost all my earnings)
What I could tell for sure was that my Bitcoin was on something called a blockchain. If you asked me to explain what a blockchain was back then, I would have shrugged and told you: “I actually don’t know what it is but it’s making me a lot of money”.
It is also probable that you’ve heard about cryptocurrency because of millionaires being made overnight by investing in Bitcoin and altcoins.
And if you have even been living under a rock, you are sure to see memes on social media about people losing their money and not being able to go to the moon.
So what exactly is a blockchain and is it all about making money?
In this article, I will explain and break down blockchain technology as simple as possible.
Blockchain was conceptualized by two researchers Stuart Haber and Scott Sornetta in 1991. They wanted to implement a system where timestamps (ie. the time an event occurs) of documents could not be tampered with.
It did not gain any traction until it was re-introduced by Satoshi Nakamoto in 2008 with the conception of Bitcoin. Removing the middleman from transactions is the problem Nakamoto sought to achieve with blockchain technology. Basically eliminating the need for a trusted 3rd party. This was done by conferring the verification of transactions to multiple, random, anonymous connected nodes, secured by complex cryptography.
- Why would there be a need to remove the middleman though?
- Is it a bad thing to remove the middleman?
The reason why this is a strong reason for the adoption of blockchain is that the middleman or third party has a lot of information about you and your transactions. Privacy is a hot topic these days and I don’t believe everyone will be comfortable with another party gathering a lot of data on them. Since the middlemen control the information used in each transaction, if their security is breached you are also compromised.
By removing the middleman with blockchain we are getting safer, faster and, cheaper transactions.
According to Euromoney, blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
Let’s break down what this means….
Time to use your imaginative powers. Close your eyes and visualize a network of blocks linked together by chains (it’s literally in the name).
Each block contains:
- Some data
- Hash of main block
- The hash of the previous block
Data stored in the block depends on the type of blockchain it is. For example the Bitcoin blockchain stores the sender, receiver, and the amount being transferred. A contract blockchain will also contain the awarder, awardee, and details of the contract.
A hash is a unique identifier that is issued to recognize a block and its contents. Just like a fingerprint it is unique and cannot be used by more than one block. Once a block is created, its hash is calculated. Changing anything in the block will alter the hash. This makes the blockchain very secure and verifies that the block cannot be tampered with.
The hash of the previous block is also stored in the block for legitimacy. If the hash of the block is changed it means that the hash of the next block will contain a different value as compared to what the block already knows. This will nullify the transaction and stop the transaction from taking place.
Every time a transaction occurs, a public record is made on the blockchain and verified by multiple blocks. Once verified, the transaction is deemed legitimate and permanently added to the public record.
Features of a blockchain network
It is a permanent, unalterable network. Without the consent from the majority of nodes(blocks), no one can add any new transaction blocks to the ledger.
The blockchain network is decentralized, which means there is no governing authority or one individual in charge of the infrastructure. The network is instead maintained by a collection of nodes, making it decentralized.
3. Enhanced Security
Every piece of information has its own unique identifier. Each block in the ledger has its own hash and also contains the hash of the previous block. Changing or attempting to tamper with the data will result in all hash IDs being changed. And that’s a bit of a stretch.
4. Distributed Ledgers
A distributed ledger is a database that is shared and synchronized by a group of people across many sites, institutions, or countries. It allows for public “witnesses” to be present during transactions. Each network node’s member has access to the recordings shared across the network and can possess an identical copy of them. Any changes or additions to the ledger must be referenced. Any changes or additions made to the ledger are reflected and copied to all participants in a matter of seconds or minutes.
In its most basic form, consensus is a decision-making mechanism for the network’s active nodes. The nodes can reach a consensus immediately and relatively quickly in this case. A consensus is required for a system to work smoothly when millions of nodes are validating a transaction. You may conceive of it as a voting system in which the majority wins and the minority is forced to support the majority.
APPLICATIONS OF BLOCKCHAIN TECHNOLOGY
If you have not figured it out by now cryptocurrency is one of the applications of blockchain technology with Bitcoin being a prime example. Bitcoin is a digital currency that is mined and granted to people. It is mined on computers using mining applications. The applications use the computer’s CPU to perform complex cryptographic algorithms to verify transactions around the globe. So basically in exchange for the computer’s power the miners are granted little fragments of Bitcoin which can be exchanged on the blockchain for different services.
Blockchain can play a key role in the healthcare sector by increasing the privacy, security, and interoperability of healthcare data. It holds the potential to address many interoperability challenges in the sector and enable secure sharing of healthcare data among the various entities and people involved in the process. It eliminates the interference of a third party and also avoids overhead costs. With Blockchains, healthcare records can be stored in distributed databases by encrypting them and implementing digital signatures to ensure privacy and authenticity.
3. Travel and hospitality
The application of Blockchain can radically change the travel and hospitality industry. It can be applied in money transactions, storing important documents like passports, other identification cards, reservations, managing travel insurance, loyalty, and rewards.
SIGNIFICANCE OF BLOCKCHAIN TECHNOLOGY
- Cheap, instant and secure peer to peer money transfer.
- Micropayments for access or payment of services. This means that instead of paying for everything for perhaps a subscriber based application , you can can pay for only what you use.
- Transactions are public but secured with cryptography. Your identity is not fully anonymous but sensitive information like healthcare, financials and so on are not linked to any middlemen.
- We can have contracts that auto-execute when both sides hold up their end
- Internet of things is a huge market for blockchain technology.
The world is however still investigating the complexities of the Blockchain concept to its fullest. In any case, we accept that with continuous inquiries and research happening in this space, the world will before long realize the gigantic potential of this innovation and it will drive a modern wave of decentralized applications. The key to remember is that there are endless possibilities with this technology.