The question is not- Will it work? The question is- If it does work How important will it be?
The blockchain has set an example of an undoubtedly revolutionary invention. It is growing at a rapid pace, creating high demands for its developers in the market. The name Blockchain is generally heard in association with the terms Bitcoin and Cryptocurrency.
It wasn’t designed as a database but was designed for a finite quantity of Bitcoin to be transferred to an address. Nowadays we can see every organization trying to include the Blockchain platform in its work pattern. Digital currencies like Bitcoin won’t even exist without it. Hence, it stands to be the backbone of all cryptocurrencies.
“The Blockchain is the core innovation”
“We want a whole sequence of companies: Digital title, digital media assets, digital stocks and bonds, digital crowdfunding, digital insurance. If you have online trust like the Blockchain provides, you can reinvent field after field after field.”
Marc Andreessen, CoinSummit (Mar 2014)
What is Blockchain Technology?
It is a list of records called blocks, which are growing continuously and are secured and linked using Cryptography. In other words, a Blockchain is a Diary or a Distributed Ledger which is impossible to forge and records transactions in a verifiable, efficient and permanent manner. Every block is linked to the previous block through a Hash Pointer (A pointer to the place where some information is stored). Hash Pointer lets you verify that the previous block of data has not been tampered with.
A Blockchain updates itself every 10 minutes.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
– Don & Alex Tapscott, authors Blockchain Revolution (2016)
Firstly let us understand the parts of BlockChain to understand it completely:
Hash Function: –
The Hash concept being simple gives a headache while studying it deeply. In easy words, it is a number of technical words to freak people out. A hash function inputs some data of any length and gives some output in a coded form of fixed length. For cryptocurrencies like Bitcoin, the transactions run through a hashing algorithm (SHA-256 for Bitcoin). SHA stands for Secure Hashing Algorithm 256.
A very first form of Blockchain was the Merkle tree also known as the Hash tree which was first patented in 1979 by Ralph Merkle.
Let’s have a look at how the hashing process works:
- The Hashing algorithm SHA-256 has a unique property that if only a single character is changed, the complete hash value changes.
- Even if the input is small or big it generates an output that has a fixed 256-bits length. Thus instead of remembering big inputs, you can keep track of the hash.
Blockchain comprises of a network of computing “Nodes”. Computer systems are connected to the blockchain network using a client. If a new node is added in the network, it automatically gets a copy of the blockchain.
For instance, one fine day you realized that you have a lot of records to remember or keep. So, you compile them and create a one-page spreadsheet and spread it over many computer systems that are in different regions of the world. These computers are said to be Nodes. Every time before any transaction it would require the approval of the nodes.
Each node has its own copy of the Blockchain or the Digital ledger. Thus, each node checks whether the transaction is valid or not. If the majority of nodes approve the transaction then it is written into a block.
Now assume if someone tries to change one entry. All the nodes having the original hash won’t allow the change to take place.
The spreadsheet that has all the data stored in it is known as a block and the complete family of Blocks is a Blockchain. In other words, a block is like a Digital ledger. When a block gets full then a new block starts working and the ledger gets updated on all the nodes at the same time. Hence making it secure.
“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”
– Vitalik Buterin, Inventor of Ethereum
A prediction made by the World Economic Forum Sept 2015 states that 10% of the total GDP would be stored on Blockchain Technology.
Working of Blockchain: –
Blockchain generally works on a few important principles:
- It uses a Distributed Database to keep track and record of the data with the help of nodes directly without the help of any intermediary, which makes it one of the most unique and important features of Blockchain Technology.
- P2P (Peer-to-Peer) Network helps in communicating directly between peers than through a centralized command & control node.
- The records once recorded and updated in the database can’t be reversed. Numerous algorithms help to ensure that the data stays in order, safe, permanent and available to all the nodes on the network.
- Transactions occur anonymously between Blockchain addresses.
Where can Blockchain be practically used?
The growing popularity of the crypto world is helping Blockchain moving into the mainstream.
Smart Contracts: –
Smart contracts are the sets of rules, regulations and penalties for an agreement. They are similar to the traditional contracts but the only difference is that they automatically enforce the rules and obligations once the contract is executed.
The Pooling market: –
Giants like AirBnB and Uber enhanced the sharing economy and it proved to be a huge success. Blockchain enables P2P transactions to establish direct connections between parties. Hence, paving way for a sharing economy which would be Decentralized.
Insurance market: –
With smart contracts using Blockchain technology, you can receive instant payouts. Provided all the required criteria are fulfilled by your claim. AXA (a French Insurance Giant) has become the first major group to introduce Blockchain technology on their insurance platform.
Car Manufacturers: –
From Porsche to Toyota, automakers across the globe are finding ways to employ blockchain into cars.
Porsche became the first automaker to test trial and include the Distributed ledger technology for their cars. Blockchain could record the data about the trip when the vehicle navigates around the world and much more.
KYC (Know Your Customer). It would become easy to store the information and keep track and record of each customer’s details.
Managing Digital ID’s: –
Managing Digital identities isn’t an easy task. It requires lots of effort and time. Blockchain makes ID verification much quicker. Even hackers won’t have any centralized loophole to attack.
In the Banking sector: –
As one of the biggest advantages of Blockchain is that it is Tamper-proof and incorruptible. Thus, financial institutions can use blockchain-backed platforms for keeping records, enhancing security and preventing themselves from scams.
IoT (Internet of Things): –
In easy words, IoT is the network controlled management of electronic devices embedded with sensors and software programs that are connected to the internet. The big giants of the tech manufacturing industry like IBM and AT&T are all working on IoT dominance.
How is BlockChain so secure?
A Blockchain can be built containing as many blocks as we want. This information will be stored on numerous blocks. We will explain you with an example…
The above image shows that if anyone tries to tamper the data from anywhere in the entire chain, in order to keep the data same the hash pointers would have to be tampered all the way to the beginning which is a near to impossible task. And ultimately he will end onto a never-ending roadblock because tempering with the head of the list isn’t possible.
Thus, a blockchain containing as many blocks as you want can be created, and Going back to the Genesis Block/ Block #0(The first block of a Blockchain) is a difficult task because it is very hardcoded.
Can you change the hash of a Block in the Blockchain?
If there is a change it will be detected and rejected by the other nodes and hash functions play a big part, making it Immutable. Suppose if someone tries to change any information on the block, the hashed value would be different and it will be easy to know that something had changed.
Is Blockchain the new Internet?
Since last year, Blockchain has boomed as it has the potential to change the structure of the Internet completely. Blockchain could be the reason behind Decentralized internet in the near future. A Decentralized Internet will take away the powers from the hands of big players who control our Data. This decentralized internet will be helpful in IoT as well, as explained above.
All the information on the internet will be stored in the form of a digital ledger on the blockchain which would be impenetrable. Thus, paving way for a new kind of Internet which is more secure and trustworthy.
How is Ethereum Blockchain different from Bitcoin Blockchain?
Ethereum is different from Bitcoin as it not only transfers money or helps in trading but also helps in the execution of smart contracts and stores programming logic.
While Bitcoin blockchain only keeps track of transactions.
Bitcoin and Ethereum are two different entities with different purposes, so they can’t be called competitors. They coexist and open doors to a new future.
Can the bank scams be stopped with the help of Blockchain?
After seeing a lot of frauds and scams in the banking sector, it has become the need of the hour to implement Blockchain technology in the banking system.
Whenever an unauthorized LOU enters the system, it can be prevented or at least detected at the earliest. No individual person alone would be allowed to complete a transaction all by himself. Blockchain acts in a loop and involves all the personnel in the task within its loop.
Blockchain explanation through animation: –
Here is an animation video to understand blockchain more easily.
“Blockchain is a technology tour de force”