Blockchain is really not that complicated. So, what is blockchain? In simpler words, it is simply a place to keep records, like a database connection in block form. This is why we call it the Blockchain.
What is blockchain?
A Blockchain is a distributed database technology that enables transparent and secure transactions. The records are secured by cryptography and contain a timestamp and a digital fingerprint (hash) of the previous record. The database is maintained by a network of computers that constantly verify new transactions using different processes like proof of stake or proof of work.
Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two mathematicians who wanted to implement a system where document timestamps could not be tampered with.
How Many Blockchains Are There?
The number of live blockchains is growing every day at an ever-increasing pace. As of 2022, there are more than 10,000 active cryptocurrencies based on blockchain, with several hundred more non-crypto currency blockchains.
Types of blockchain networks
They can be public, private, permissioned, or built by a consortium.
- Public networks: This network is one that anyone can join and participate, such as Bitcoin. Drawbacks might include substantial computational power required, little or no privacy for transactions, and weak security.
- Private/Permissioned networks: This is similar to a public blockchain network. However, one organization controls the network. Depending on the use case, this can significantly boost trust and confidence between participants.
- Consortium blockchains: Organizations determine who may submit transactions or access the data. A consortium blockchain is ideal for business when all participants need to be permissioned and have a shared responsibility for the network.
Why is Blockchain Popular?
Blockchain is popular because it allows for secure and transparent transactions(for Example Bitcoin and Ethereum). The transactions are grouped into blocks and secured by cryptography, meaning that data cannot be modified or tampered with. This makes it ideal to be used in a wide range of applications.
Major Blockchain Elements
Every chain consists of multiple blocks and each block has three basic elements:
- The data in the block
Every data in a block must contain a nonce, which is randomly generated when a block is created, which then generates a block header hash.
Hash codes are created by a mathematical function that turns digital information into a string of numbers and letters.
When the first block of a chain is created, the data in the block is considered signed and forever tied to the nonce and hash unless it is mined.
These are people who create new blocks on the chain through a process called mining.
They use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. When that happens miners are said to have found the “golden nonce” and their block is added to the chain. When a block is successfully mined, the miner is rewarded financially.
A node can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning.
Every node that has its own copy of the network must approve any newly mined block for the chain to be updated, trusted, and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed.
Is Blockchain Secure?
Blockchain technology achieves security and trust in several ways. After a block has been added to the end of the network, it is extremely difficult to go back and alter the contents of the block unless a majority of the network has reached a consensus to do so. That’s because each block contains its own hash, along with the hash of the block before it.
Let’s say that a hacker, who also runs a node on a network, wants to alter the database and steal cryptocurrency from everyone else.
Succeeding with such a hack would require that the hacker simultaneously control and alter 51% or more of the copies of the network so that their new copy becomes the accepted chain.
Doing such a thing would not go unnoticed, as network members would see such drastic alterations to the network.
What is Blockchain and Bitcoin Relationship?
“Blockchain is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one,” Sally Davies, FT Technology reporter.
Many people still get confused about these two terms, Bitcoin and Blockchain, Thus, it is important to understand how these terms differ and how they are interrelated.
Bitcoin is a cryptocurrency, which is an application of Blockchain, whereas Blockchain is simply an underlying technology behind Bitcoin.
The Bitcoin protocol is built on a blockchain network.
How Cryptocurrency Work on Blockchain?
A cryptocurrency (for example, Bitcoin) can be used as a digital form of cash. It can be bought using one of several digital wallets or trading platforms, then digitally transferred upon purchase of an item, with the blockchain recording the transaction between the seller and the new owner. Cryptocurrencies use blockchain technology to record and secure every transaction.
Crypto reduces the need for individualized currencies and central banks- With blockchain, crypto can be sent to anywhere and anyone in the world without the need for central banks.
More and more large corporations are coming around to the idea of a blockchain-based digital currency for payments.
Here is a history of how far blockchain technology has come, though it is trending now, it has been around for quite some time:
Computer scientist Ralph Merkle describes an approach to public-key distribution and digital signatures called “tree authentication” in his Stanford University Ph.D. thesis.
David Chaum describes a vault system for trustless online interaction in his 1982 Ph.D. dissertation for UC Berkeley.
David Chaum develops the eCash platform, which launches with the goal of allowing people to transfer money anonymously over the internet.
Chaum goes on to found DigiCash, which bases itself upon the eCash concept and, like eCash, fails.
Stuart Haber and W. Scott Stornetta describe a cryptographically secured chain of blocks for the first time, as well as a process to timestamp digital documents.
Haber and Stornetta update their designs to incorporate Merkle trees in order to allow multiple document certificates to exist on a single block.
Adam Back introduces Hashcash, a PoW algorithm that aims to limit email spam through denial-of-service countermeasures.
Cryptocurrency is coined (no pun intended) as a term, the same year DigiCash goes bankrupt.
Computer scientist Wei Dai launches B-money, which aims to be an anonymous, distributed electronic cash system.
Napster incurs a rise in the usage and popularity of peer
Stefan Konst publishes a theory on cryptographically secured chains as well as ideas for practical implementation.
Hal Finney introduces reusable PoW, a mechanism for receiving non-fungible tokens.
Satoshi Nakamoto publishes the Bitcoin white paper.
The Bitcoin Genesis Block is mined.
The first bitcoin transaction occurs in block 170 between Satoshi Nakamoto and Hal Finney, the latter of whom receives 10 bitcoins from Nakamoto.
The first bitcoin exchange, called the New Liberty Standard, is established.
Laszlo Hanyecz spends 10,000 bitcoin on two Papa John’s pizzas. Still, in later interviews, he’s said he doesn’t regret his $500m decision.
Bitcoin reaches $1 USD per coin for the first time.
Charlie Lee launches Litecoin, which is a fork of Bitcoin.
The first bitcoin halving happens.
Peercoin publishes a paper that introduces Proof of Stake.
Coinbase raises $600k and launches its exchange platform.
The Bitcoin Foundation is established to promote Bitcoin.
Bitcoin hits a $1bn market cap.
Vitalik Buterin introduces Ethereum and smart contracts in a white paper.
25,000 bitcoins are stolen from a Bitcoin Forum founder’s wallet.
Kevin McCoy mints the first one-off NFT called “Quantum” and describes it as a monetized graphic.
Microsoft accepts bitcoin as payment for Xbox games and Windows software.
Counterparty launches that allow non-fungible asset creation.
Dash (DASH) launches. Stellar (XLM) launch.
Tether (USDT) launches as a stablecoin, which ties itself to the value of the U.S dollar.
The DAO (Decentralized Autonomous Organization) loses $50m in a hack.
The second Bitcoin halving happens.
Bidorbuy, the largest South African marketplace, launches bitcoin payments for buyers and sellers.
Bitfinex, a major crypto exchange, is hacked and 120,000 bitcoins are stolen.
A bug in the Ethereum DAO code is exploited, leading to a hard fork of the Ethereum network.
Bitcoin exchange Bithumb is hacked to the tune of $20m.
Virtual currencies are officially recognized in Japan and bitcoin becomes a legal payment method.
Russia announces plans to legalize the use of cryptocurrencies, and such plans were later enacted in 2020.
Bitcoin hits $10,000 USD per coin.
Bitcoin Cash, another Bitcoin hard fork, launches with an increased block size limit.
Microsoft launches a blockchain service.
Amazon opens up the Amazon Managed Blockchain service on AWS.
Walmart launches a supply chain system using Hyperledger.
Nike patents a system called CryptoKicks that uses NFTs to verify the authenticity of physical shoes.
The Frankfurt Stock Exchange admits the first bitcoin exchange-traded note.
Paypal allows users to buy and sell a select number of cryptocurrencies on its platform.
Ethereum launches the Beacon Chain in preparation for Ethereum 2.0, which aims to transfer to PoS(Proof of Stake).
Dapper Labs releases the beta version of NBA TopShot, which sells NBA-related digital collectibles.
- Smart Contracts
A smart contract is a computer code that can be built into the network to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a set of conditions to which users agree. When those conditions are met, the terms of the agreement are automatically carried out.
Voting with blockchain carries the potential to eliminate election fraud and boost voter turnout. Using blockchain in this way would make votes nearly impossible to tamper with. The blockchain protocol would also maintain transparency in the electoral process, reducing the personnel needed to conduct an election and providing officials with nearly instant results. This would eliminate the need for recounts or any real concern that fraud might threaten the election.
- Accuracy of the Chain
Transactions on the blockchain network are approved by a network of thousands of computers. This removes almost all human involvement in the verification process, resulting in less human error and an accurate record of information. Even if a computer on the network were to make a computational mistake, the error would only be made to one copy of the blockchain. For that error to spread to the rest of the blockchain, it would need to be made by at least 51% of the network’s computers—a near impossibility for a large and growing network the size of Bitcoin’s.
- Cost Reductions
Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage. Blockchain eliminates the need for third-party verification—and, with it, their associated costs. For example, business owners incur a small fee whenever they accept payments using credit cards because banks and payment-processing companies have to process those transactions. Bitcoin, on the other hand, does not have a central authority and has limited transaction fees.
Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with.
- Efficient Transactions
Transactions on blockchain can be completed in as little as 10 minutes and can be considered secure after just a few hours. This is particularly useful for cross-border trades, which usually take much longer because of time zone issues.
- Private Transactions
Many blockchain networks operate as public databases, meaning that anyone with an Internet connection can view a list of the network’s transaction history. Although users can access details about transactions, they cannot access identifying information about the users making those transactions. It is a common misperception that blockchain networks like bitcoin are anonymous, when in fact they are only confidential.
- Secure Transactions
Once a transaction is recorded, its authenticity must be verified by the blockchain network. Thousands of computers on the blockchain rush to confirm that the details of the purchase are correct. After a computer has validated the transaction, it is added to the blockchain block. Each block on the blockchain contains its own unique hash, this makes it almost impossible to hack in any way.
Most blockchains are entirely open-source software. This means that anyone and everyone can view its code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security. Also the upgrading and maintenance of systems on the blockchain rest with the system users.
- Banking the Unbanked
Perhaps the most profound facet of blockchain and Bitcoin is the ability for anyone, regardless of ethnicity, gender, or cultural background, to use it. According to The World Bank, an estimated 1.7 billion adults do not have bank accounts or any means of storing their money or wealth. Nearly all of these individuals live in developing countries, where the economy is in its infancy and entirely dependent on cash.
- Technology Cost
Although blockchain can save users money on transaction fees, the technology is far from free. For example, the PoW (Proof of Work) system that the bitcoin network uses to validate transactions consumes vast amounts of computational power. In the real world, the power from the millions of computers on the bitcoin network is close to what Norway and Ukraine consume annually.
- Speed and Data Inefficiency
Bitcoin is a perfect case study for the possible inefficiencies of the blockchain network. Bitcoin’s PoW(Proof of Work) system takes about 10 minutes to add a new block to the network. At that rate, it’s estimated that the network can only manage about seven transactions per second (TPS).
The other issue is that each block can only hold so much data. The block size debate has been and continues to be, one of the most pressing issues for the scalability of blockchains going forward.
- Illegal Activity
While confidentiality on the network protects users from hacks and preserves privacy, it also allows for illegal trading and activity on the blockchain network.
Blockchain is also exposed to a highly coordinated attack by hackers known as the 51% attack.
This technology stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen. You can receive Online Blockchain Certifications and Training by taking courses from the Blockchain council.
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