The blockchain is one of the most searched buzz words in the industry today. Unlike other technologies, Blockchain is somewhat complicated and tough to understand for any beginner. Our What is Blockchain blog is aimed to demystify this and provide a basic understanding of how a Blockchain functions. Let us get started right away.
Now, you can check out our short animated video on What is Blockchain to get a basic perspective on the topic.
Introduction to Cryptocurrency & Bitcoin
What would you do if someday all your money is stolen? Or the government rapidly starts printing currency notes inflating the economy and devaluating your currency? Ordinary people have no control over the monetary economy nor can take decisions such as monetary policies. All of these directly affect our money, whether it is in Rupee, Dollar, Yen or Euro. Banks and governments control institutions which have a monopoly over their circulation and often charge huge transaction fees.
Cryptocurrencies were invented to overcome these issues. Bitcoin was the first cryptocurrency that was created. A cryptocurrency is a parallel economy to the existing currencies. There are fixed rules as to how much amount of the cryptocurrency is in circulation and how new money should be created. Algorithms help to maintain the security of these systems and it is close to impossible to steal currency from these systems. We will discuss more about cryptocurrencies in the further sections.
What is Blockchain?
The blockchain is creating revolutionary technology that helps to run the cryptocurrencies. A ‘Blockchain’ is a chain of many individual units called as blocks. Each of these blocks consists of a set of transactions (E.g. Bitcoin Block consists of about 700 Bitcoin transactions). These blocks are attached in a fashion similar to a linked list, i.e., a blockchain is a growing list of records. The below image shows how new blocks are added to a Blockchain.
Figure: What is Blockchain – Blocks being added to the existing Blockchain
As we can see from the above illustration, a Blockchain consists of blocks that are continuously added to one of its end which consists of the most recent transactions.
We know that Bitcoin implemented Blockchain for storing its transactions. Bitcoin transactions consist of three parts. There is a sender’s account address (digitally signed using sender’s private key) which is encrypted so that the anonymity of the users is maintained. Then there is the recipient’s public address, also encrypted. Finally, there are the transaction details which says how much Bitcoin needs to be transferred to the recipient.
Features of Blockchain
Blockchain has the following features:
1)Peer to Peer Network
Every single person on the network has a copy of the ledger. There is no single centralized original copy. Ledger here means the copy of all the transactions that ever happened. Blockchain is a distributed database that stores all the Bitcoin transactions that have ever happened in the history of Bitcoin. This ensures that no one person can make changes to the ledger because everyone else will immediately flag it as corrupt.
Everything stored on the Blockchain is encrypted. This way, everyone is able to see all the transactions but at the same time no one will know which of those accounts belongs to you.
3)Proof of Work
Proof of Work is a concept invented in Bitcoin Blockchain where in the miners (special users of Bitcoin) will validate transactions by solving a complex mathematical puzzle called Proof of Work. Technically, there is a hash target value designated to every block before time. Miners club together a set of unverified Bitcoin transactions (around 250) into one block, compute its hash and then begin a race to find a specific set of characters called Nonce. The total hash obtained from the hash of the previous block, transaction data and the nonce has to match the final pre-assigned target hash value. It is this Nonce which is computationally extensive. Only people with huge computational computing power and electricity are able to solve it in 10 minutes on average.
A Blockchain program is used to create and implement rules in the Blockchain. Blockchains can be used to perform multiple programs. An example of a program is to store ID cards of all citizens for authentication during elections. Different Blockchains can have different programs in them.
Applications of Blockchain
Bitcoin is just the most popular application of the Blockchain Technology. There is the countless number of technologies that are running on the Blockchain today. Let us look at a few of these:
Followmyvote is the world’s first open-source online voting solution based on blockchain & helps in voter identification & online voting.
ShoCard stores your identity onto Blockchain for easy verification. Can be used for Governmental schemes and bank verification.
Aracade City is a true decentralized ride-sharing service often called ‘Uber killer’. Works on real-time carpooling technique based on Blockchain.
Everledger provides an immutable blockchain ledger for diamond identification and transaction verification.
Brooklyn Microgrid allows local residents to buy and sell the energy on blockchain they produce from rooftop solar power installations.
Bitshares provides a high-performance decentralized trading platform on the blockchain.
So we have tried to help you understand the core concepts of Blockchain through this blog. For a detailed understanding of Blockchain Technology, you can go through our Blockchain Tutorial blog. To learn about the role of Blockchain in Bitcoin, refer to our Bitcoin Blockchain Explained blog.
Got a question for us? Please mention it in the comments section and we will get back to you at the earliest.