Understanding Blockchain

Blockchain and The Matrix?

So you've also heard the term 'Blockchain' and thinking on your own, what the heck on earth is blockchain? and why so much hype about it everywhere? 

Before we dive into the topic I would like to ask a question to you; The question is like, have you watched the movie "The Matrix"? If the answer is No then go on and have a look on it. I suggested to watch 'The Matrix' because we can relate and compare few basics which would make easy for you to understand blockchain technology. Not too much similarities, but it'll help you for your imagination. To be frank you'll become a fan of Keanu Reeves after watching the trilogy.

Let it. You should now try to imagine what I will be saying to you. In 'The Matrix' it takes us to the future where the intelligent machines rule the world. As humans blocked the machines' access to solar energy, the machines responded by capturing humans and harvesting their bioelectric power, while keeping their minds pacified in the Matrix, a shared simulated reality modeled after the world as it was in 1999. The machines did it by keeping the harvested humans in some type of liquid-filled pods and connecting all the pods by some kind of wires and cable connectors and they had millions of humans connected with each other. The humans within the pods served as the energy source and data storage and cables served as the data transfer medium, which made the matrix possible.

Now we can establish some similarities in between the matrix and blockchain. Like humans in the matrix we have blocks in the blockchain. Blocks of blockchain serve as the data storage or in other words database. It stores data and information. Like the cables work as connectors in the matrix, in blockchain the blocks then link with one another through a cryptographic validation known as a hashing function. And this is the basic fundamental constitute of blockchain. Just try to imagine it.

So what the heck on earth is blockchain?

It seems quite simple to understand it from it's name. The blockchain has two words in it, one is block and another one is chain. So one can simply relate it's a kind of blocks in chain. Cryptocurrencies like Bitcoin and Ethereum operate on blockchain technology, it is a way of securely recording and transferring information in distributed format. Though most of us came to know about it because of cryptocurrencies, but it may have much broader applications outside of just cryptocurrencies.

Blockchain is a chain of blocks that contains information. A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single-source-of-truth for the data. It is a decentralized distributed ledger which is open to anyone. Decentralized because Distributed ledger technology (DLT) allows record keeping across multiple computers, known as “nodes.” Anyone with the access of a computer can become a node of the blockchain. Thus by making blockchain records not unalterable and immune to manipulation, blockchain may be considered secure by design and exemplify a distributed computing system. It's structure makes it resistant to modification of their data because once recorded, the data in any given block cannot be altered without altering all subsequent blocks.

The first practical blockchain was invented by Satoshi Nakamoto in 2008 to support the transactions of a cryptocurrency bitcoin. Nobody knows who is Satoshi Nakamoto, not even me, but everyone in this field admires his work. I believe blockchain has the potential to change the foundation of many things in this world.

Structure and Working of a Blockchain

The security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism. Block is the main fundamental unit of blockchain. A block contains some data, the hash of the block and the hash of the previous block. The data that is stored inside a block depends on the type of blockchain. Block also contains the hash. A hash is a function that meets the encrypted demands needed to solve for a blockchain computation. Hashes are of a fixed length since it makes it nearly impossible to guess the length of the hash if someone was trying to crack the blockchain. The same data will always produce the same hashed value. We can compare the hash to fingerprints. It identifies a block and all of its contents and it's always unique. Once a block is created it's hash is being calculated. Changing something inside the block will cause the hash to change. So in other words: hashed are very useful when you want to detect changes to block. The block also contains the hash of the previous block. This effectively creates a chain of blocks and it's this technique that makes a blockchain so secure. Blockchain has the mechanism called proof-of-work. It's a mechanism that slows down the creation of new blocks. In blockchains, instead of using a central entity to manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join. When someone joins this network, he gets the full copy of the blockchain and also receives the copy of any new block created. The node can use this to verify that everything is still in order. 

The new update to blockchain is smart contracts. Smart contract is a set of rules that is stored on the blockchain and executed automatically. It speed ups the transactions. Ethereum blockchain is the best way to understand smart contracts and I'll write an another separate post for it.

Why so much hype about it everywhere?

If we make our assumptions most of the hype is driven by cryptocurrencies especially with the rise in bitcoin. Most people came to know about blockchain through bitcoin. Some people think that blockchain is all about bitcoin and cryptocurrencies, but it is much more than that. Blockchains has the potential to change the future. Blockchain technology can be integrated into multiple areas. Many businesses have begun testing the technology and are conducting low-level implementation to gauge its effects on organizational efficiency. Blockchains can be set up to operate in a variety of ways, using different mechanisms to secure a consensus on transactions, seen only by authorized users, and denied to everyone else. Health care providers can leverage blockchain to securely store their patients’ medical records.  

According to Reason, many banks have expressed interest in implementing distributed ledgers for use in banking and are cooperating with companies creating private blockchains, and according to a September 2016 IBM study, this is occurring faster than expected. Banks are interested in this technology because it has potential to speed up back office settlement systems. Blockchain is also being used in peer-to-peer energy trading. There are a number of efforts and industry organizations working to employ blockchains in supply chain management also. Blockchain can be used in many more ways like those are given above and further more implements will come around with the maturity of this new technology.

Blockchain can be classified into few types like public blockchain, private blockchain and hybrid blockchain, but that's a topic of discussion for an another day. Hope, you liked it.