Blockchain in details

Today’s topic is the Blockchain and the exciting world of blockchain technology. Hopefully by the end of this article  you’ll understand exactly what blockchain technology is and why it’s really hard to separate it from Bitcoin. Blockchains are incredibly popular nowadays. But what is a blockchain? How do they work, what problems do they solve and how can they be used? Here in today's article I am going to answer all of questions related to Blockchain in a very easy way. So Let's discuss on every aspect of Blockchain.

What is Blockchain Technology?

Like the name indicates, a blockchain is a chain of blocks that contains information. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them.

However it went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin.

A blockchain is a distributed ledger that is completely open to anyone. They have an interesting property: once some data has been recorded inside a blockchain, it becomes very difficult to change it.

Why it is called as Blockchain:

You might be wondering why is it called Blockchain?
Well, imagine we’re maintaining a shared ledger with many pages of records. Each page begins with a sort of summary of the page before it. If you change a part of the previous page, you’ll also have to change the summary on the current page. So the pages are actually linked, or chained together.
In technological terms, pages are called blocks. And since each block is linked to the data of the previous block, we have a chain of blocks, or a blockchain. 

Many people think that Satoshi Nakamoto, the mysterious inventor of Bitcoin, created Blockchain technology.
Technically he only created the first real life implementation of it - Bitcoin. In fact, that word Blockchain is never even mentioned in Satoshi’s original whitepaper. The closest he comes to saying Blockchain is “chain of blocks”.

Why Blockchain Technology was designed?

Before we understand how Blockchain technology works, we need to understand what problems it was designed to solve, so let’s take a step back and let me ask you a question...
How do you tell if something is fake or real in today’s world?
For example, a dollar bill, a driver’s license or a vote in the election. How do you determine whether it’s valid or not? The answer? We keep a record of it.
Each dollar bill has a serial number that is recorded by the bank. Your driver’s license number is recorded by the DMV and voting records are used to track who voted and who didn’t.
The same person won’t be able to vote twice. Whenever you want to verify that a document is legit, you just look it up with the relevant authority. We even have Notaries, people who are licensed by the government to act as witnesses to attest and record the validity of pieces of information or identities.
You’ll notice there’s one thing that all of these mechanisms
have in common - they are all centralized, which means there’s a central authority, whether it’s a bank, state office, or person that has the power to issue and validate information.
These central authorities have a lot of power, and as you know power may sometimes corrupt. So what happens if one of these authorities wants to change the facts or even maybe change history a little bit?
Even our world history is just a record kept by historians
in a centralized manner. The phrase “History is written by the victors” tells us that facts can sometimes be distorted by those in power. 

Bitcoin And Blockchain:

Bitcoin was the first form of money that removes the need for a central authority. Its records are kept by everyone, not just by central banks. And when everyone is keeping track and verifying the facts, well, that means that you can no longer change the ledger of transactions whenever something doesn’t add up or because it’s more convenient. You actually have to start being accountable.
Decentralization reduces the risk for corruption, fraud and manipulation. Blockchain technology is a new and innovative way to implement decentralization. Blockchain technology is a solution for the problem of centralization. It’s a system for keeping records by everybody, without any need for a central authority - a decentralized way of maintaining a ledger that is practically impossible to falsify. I mean, when so many eyes are watching and verifying everything that’s being done, it’s really hard to break the rules unnoticed. 

Darkweb And Blockchain:

In Bitcoin’s case things actually started through use on the dark web, where people used Bitcoin to pay for drugs and other illegal stuff. But since then, more people have begun to research Bitcoin and blockchain, and have seen the benefits they offer; either in practice, or as an investment.

So there you have it, the five elements of a truly open, public(discussed below), decentralized blockchain.

Now that you know what blockchain technology is, we still have two major questions to answer - how does it actually work and is blockchain going to change our future?

How Blockchain Works?

Let’s start with the first question. Another way to ask this question would be - how do I create a system that allows the creation, verification and updating of records by everybody?

Well, there are four elements a blockchain needs to actually have a life of its own.

The first thing required to support a blockchain is a peer-to-peer network - A network of computers, also known as nodes, that are equally privileged. It’s open to anyone and everyone. This is basically what we already have today with the Internet. We need this network so that we will be able to communicate and share with each other remotely.

The second ingredient is cryptography. Cryptography is the art of secure communication in a hostile environment. It allows me to verify messages and prove the authenticity of my own messages, even when malicious players are around. We need cryptography because of the first element. Remember, I said anyone can participate in this network. It’s great that I can communicate, but I also need to make sure my communication comes through unaltered.

The third element is a consensus algorithm. You can switch the technical word “algorithm” with the word “rule”. This means we need to agree about rules on how we add a new page, also known as a block, to our records.
There are many types of consensus rules, in Bitcoin’s case.
We use a consensus algorithm known as Proof of Work. This algorithm states that in order for someone to earn the right to add a new page to our ledger they need to find a solution to a math problem, which requires computational power to solve. Computers around the network run calculations to solve the math problem and in doing so, consume a lot of energy. In other words they do a lot of work.

Finally, our last element is punishment and reward. This element is actually derived from game theory and it makes sure that it will be in people’s best interest to always follow the rules. So far, we’ve set up a network that has a way to communicate securely, and follows a set of rules for reaching consensus. Now we’ll glue these elements together by giving a reward to people that help us maintain our records and add new pages. This reward is a token, or coin, that is awarded each time a consensus has been reached and a new block is added to our chain. On the other hand, bad actors who try to trick or manipulate the system will end up losing the money they spent on computational power or their coins can be taken away from them. In the end, the important thing to remember is that the punishment and reward system works on psychological behavior.

However, there is a fifth element, that can’t really be synthesized... market adoption. I mean, we can have a group of five people sharing a ledger with a consensus algorithm but it doesn’t really make it decentralized, since not enough people are a part of the system. Moreover, if there’s no adoption, there’s not really any value to our coin and the fourth element of punishment and reward isn’t very effective.
Only once you achieve critical mass in the number of users,
does a blockchain become truly decentralized and therefore immutable. And at that point, the coin of that blockchain usually begins to appreciate in value. It’s hard to say what triggers mass scale market adoption.

Blockchain Types?

If you’re thinking that it sounds like a lot of hard work to put a blockchain in motion, you’re absolutely right. But this is where Ethereum comes in. Ethereum is a Do It Yourself blockchain where all of these five elements are already in motion. All you need to do is build the right solution on top of it.

Private or Closed Blockchain:

Now let’s move on to another term you may have heard - a private, or closed blockchain. This term refers to companies that screen and limit the players who can participate in their blockchain. It’s a bit like how the Internet, which is open to everybody and anybody, is different from an Intranet - an internal network of company computers. While I assume some companies will find value in running private blockchains to improve their internal processes, it’s far from anything exciting inasmuch as it has nothing to do with decentralization. 

Public Blockchain:

A public blockchain is open to everybody, it’s transnational and borderless. It’s censorship resistant, and it doesn’t require any 3rd party. It’s also neutral - there’s no such thing as a “good”, “bad”, “illegal” or “legal” transaction, there’s only a “valid” or “invalid” one.
The features of a public blockchain, on the other hand, create enormous benefits. There’s no single point of failure. The records are immutable, also known as tamper proof.

Future of Blockchain:

Before we end today’s article we still have one major question to answer - Is blockchain technology the next big thing?
I assume you may have heard of different startups that are using blockchain technology to solve some sort of a problem. In most cases when I hear of such a company I ask two questions:
First, are they using a public or private blockchain? Since if they're not using a public blockchain there’s not really anything very disruptive here. Second, do they even need a blockchain? If you remember in the beginning of this lesson, we talked about the dangers of centralization. But these dangers are only meaningful if there’s a lot at stake. For example, the queue to the pharmacy is managed in a centralized manner but I don’t really care since there’s not a lot at stake and it’s actually more efficient that way. Blockchain technology is very good at decentralizing, but it’s also very inefficient, slow and energy consuming.

Why you choose Blockchain?

The only reason to choose Blockchain technology as your solution is if your problem is actually centralization. If you don’t need to decentralize something, you probably don’t need to use blockchain technology and are better off with some centralized solution. In fact it will probably work better.

So this was today's article. I hope now whenever you hear the term “blockchain technology” in the future you’ll know to take it with a grain of salt and ask the right questions. You may still have some questions. If so, just leave them in the comment section below.
I’m Habib, and I’ll see you… in the next article. Smile,