Theory Behind Blockchain

[Shaavi]

You may have heard of the term blockchain, bitcoins and cryptocurrencies earlier. But what exactly are those. Blockchain is the technology behind almost all the digital currencies in the world. So without blockchain bitcoins and cryptocurrencies will not exist.

According to Don & Alex Tapscott blockchain can be referred to as, an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. In simple blockchain is a public ledger which records anything of value.

Basic Terminology

Record : Any kind of transaction or a deal
Block : A bundle of records
Chain : A set of blocks
Node : Computers in the network

For example, let's consider a transaction where a deal gets included in a blockchain in which one party sells two coins for $100.

• Step 1 : A record is created regarding the trade. The record consists details about the trade including digital signatures from each party.

• Step 2 : The record is checked by the computers in the network called “nodes” in order to make sure the transaction is valid.

• Step 3 : The record is then added to a block. The blocks contain a unique hash for each block with the hash of the previous block.

• Step 4 : Each of the blocks are added to the blockchain where each blocks are connected together with the unique hash codes.

What if hash is changed?

As the blocks are connected using a unique hash of every block, a block contain the hash of the previous block too. So when changing a hash of a block, the hash of the next block should also be changed accordingly and so on. Recalculating hash of all the blocks need a huge computing power so it is considered that changing a hash is impossible.

There are some key advantages in using blockchain for various needs.

• Trust and Transparency : One of the main reasons to use blockchain is trust and transparency. As this is a public ledger every person can see what is happening in the blockchain.

• Cost Effective : As blockchain is a peer-to-peer network where any person can work directly there is no need for a central third party to work on behalf of someone.

• Unbreakable : Blockchain are unbreakable as the blocks are connected with a unique hash. Once a transaction is completed and added to the blockchain they are protected by cryptography.

• Availability : Due to the positivity of blockchain being a peer-to-peer network and a public ledger it is available for everyone.

• Decentralized : This is the most important and core advantage of blockchain. It can be said that all the other advantages exist due to this key feature in blockchain.

[fern]

Good post

[Grasshopper]

interested

[dinlinux]

Great post.

[Shaavi]

@fern thank you

[Shaavi]

@Grasshopper thanks a lot

[Shaavi]

@dinlinux thank you