Getting started with BlockChain
Why do we need to understand Blockchain technology?
Deloitte conducted a survey in 2019 in a dozen countries to gain insights into overall attitude and investment in blockchain as a technology from decision makers of large scale companies.
53 percent of respondent say that blockchain has become a critical priority for their organization in 2019- a 10-point increase over last year and it will be in top 5 strategic priority.
This one of the surveys done on Blockchain clearly shows it is becoming more and more important for companies and also for governments. This means there will be many projects which will run on Blockchain technology.
CBInsights in a research found out that banking isn’t the only industry affected. Here are the latest innovative ways companies are harnessing the power of global blockchain.
- MESSAGING APPS
- HEDGE FUNDS
- INTERNET IDENTITY & DNS
- CRITICAL INFRASTRUCTURE SECURITY
- RIDE SHARING
- INTERNET ADVERTISING
- CRYPTO EXCHANGES
- and many more
Now that we have understood the power of Blockchain and its impact globally. This goal of this story to discuss some of the keys FAQ which are being asked by many professionals.
So lets begin..
#1. What is Blockchain
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
– Don & Alex Tapscott, authors Blockchain Revolution (2016)
This quote captures the essence of Blockchain which are:
- Incorruptible digital ledger — A database based on Transparency and Trust which can not be corrupted.
- Transactions that can be programmed to record — Focussed on moving business systems from paper to digital so that every transactions can be tracked, audited and secured.
- Everything of Value — Today on internet we can freely share information like pdfs, email, messages, documents, similar to this with Blockchain we should be able to freely share the value like money, bonds, stocks, music, arts, contracts, identities
#2 What is Distributed ledger technology?
I call the blockchain ‘the Internet of value’ and ‘the Internet of trust.’ Because everything becomes trustless. It’s a big distributed ledger. Think of it like an Excel file that’s being maintained and updated and managed by millions of computers around the world.
Brock Pierce — Entrepreneur and Venture Capitalist
The term Ledger is commonly referred to record any transactions which deals with value transfer such as payments, property contracts, assets. Currently the ledgers are stored centrally which means there is a central authority which validates the records coming in Ledger.
With the term Distributed Ledger, the copy of the ledgers are now stored at multiple servers at many different geographical locations. This means there there is not central point of failure. No single person or authority can validate the transaction on the distributed ledger. The validation will happen through consensus algorithm.
BlockChain is a form of Distributed Ledger which is comprised of block of transaction. So how the distributed ledger is implemented is what makes blockchain different.
Both BlockChain and Distributed Ledger are referred under one umbrella term Distributed Ledger technology (DLT)
#3 What are the concerns with an intermediary and how can BlockChain help?
Bitcoin is completely decentralised, with no central server or trusted parties, because everything is based on crypto proof instead of trust.
-Satoshi Nakamoto -Bitcoin founder
Bitcoin seeks to address the root problem with conventional currency: all the trust that’s required to make it work — Not that justified trust is a bad thing, but trust makes systems brittle, opaque, and costly to operate.
Before cryptocurrencies, digital transactions between two parties required a trusted third party to act as an intermediary.
Few concerns with intermediaries are:
1. Possibility of Fraud, Server centralised crash which means single point of failure
2. Charge fee on business transaction — transactions are costly
3. Possibility that many people can be excluded from financial services — For example people require bank accounts to avail the financial services.
For many investors and analysts, the 2008 financial crisis is a powerful demonstration of what happens when the financial world puts too much trust in centralized institutions – https://www.investopedia.com/tech/how-blockchain-can-protect-global-economy/
Blockchain aims to solve these concerns by creating a TRUSTLESS platform! It has advantages:
First, it is distributed: It runs on computers provided by volunteers around the world, so there is no central database to hack.
Second, it is public: Anyone can view it at any time because it resides on the network.
And third, it is encrypted: It uses heavy-duty encryption to maintain security.
#4 How is Blockchain made so secured?
Blockchain technology makes use of cryptography in multiple different ways — for wallets, transactions, security, and privacy-preserving protocols.
Public-key cryptography (also called asymmetric cryptography) is a cryptographic system that uses a pair of keys — a public key and a private key. The public key may be widely distributed, but the private key is meant to be known only by its owner. Keys are always created in a pair — every public key must have a corresponding private key.
Cryptographic hash functions* are hash functions that have these crucial properties:
- Deterministic: No matter how many times you give the function a specific input, it will always have the same output.
- Irreversible: It is impossible to determine an input from the output of the function.
- Collision resistance: No two inputs can ever have the same output.
*For reference, Bitcoin uses a cryptographic hash function called SHA-256 and Ethereum uses keccak256.
So, how does cryptographic hashing enable immutability for blockchain technology? The answer is that every new block of data contains a hash output of all the data in the previous block.
A Merkle tree (or hash tree) is a tree that utilizes cryptographic hash functions to store hash outputs instead of raw data in each node. Each leaf node consists of a cryptographic hash of its original data, and every parent node is a hash of the combination of its child node hashes.
So why are Merkle trees important for blockchain technology?
Using the Merkle root and applying the properties of cryptographic hash functions, one can quickly tell if transactions in a given block have been tampered with and the specific transaction that is being tampered.
Read more — https://crushcrypto.com/cryptography-in-blockchain/
#5 What is Mining in Blockchain platform?
When a person A initiate a transaction say sending few coins to person B, the transaction need to be recorded in a Block and then this Block need to be secured and authenticated. This process of verifying the transaction is called mining.
There are miners who participate on the blockchain network and can do this verification by solving a cryptographic puzzle and assigns a cryptographic hash to this block.
A cryptographic hash function is a mathematical algorithm that maps data of arbitrary size to a bit array of a fixed size. It is a one-way function, that is, a function which is practically infeasible to invert. Wikipedia
The solution to the puzzle is called proof of work which proves that miners did spend a lot of time and resource to solve it.
once the secured block is added to BlockChain then all the nodes (computers) can verify this block through the process called consensus
Read more — https://www.ethos.io/what-are-miners-cryptocurrency-mining
It is probably referred to as mining as it is analogous to mining of commodities like gold — mining gold requires a lot of effort and resources.
#6 What does Block and Chain means?
Blockchain transactions are continuously verified, cleared, and stored by the network in digital blocks that are connected to preceding blocks, thereby creating a chain.
A block is composed of a header and a long list of transactions
Unconfirmed transactions are ones that have been transmitted to the bitcoin network but have not been included in a block on the blockchain yet.Each node on the network has a pool of unconfirmed transactions referred to as it’s mempool. Source
#7 What is double spending problem?
When I am sending you an email or document, I am sending you a copy. If I send the same email to you again, there can not be an issue but when I am sending something which has value like money then it can be an issue.
This ‘double-spend’ problem is prevented in blockchain-based cryptocurrencies such as Bitcoin by using a consensus mechanism known as proof-of-work (PoW) — Source
#8 What are the different architecture options of Blockchain?
There are two major types of blockchain configurations. They include the following.
- Public/Permission Less-A public blockchain has absolutely no access restrictions. Anyone with an Internet connection can send transactions to it as well as become a validator (i.e., participate in the execution of a consensus protocol)
- Private /Permissioned— A private blockchain is permissioned. One cannot join it unless invited by the network administrators. This is a scalable architecture.
#9 What next in blockchain and whats in it for me?
BlockChain has applications in the healthcare, Governance, cyber security, automobiles, media, travel, logistics & hospitality, education, legal, energy, smart cities and so on.
Dubai was crowned ‘World Capital of Blockchain’ by CNBC, and won ‘First Smart City on the Blockchain’ award at the Barcelona Smart City Expo.Source
To build a career in BlockChain as Developer or Product professional, it is important to understand both the Domain and technology.
and to get started with BlockChain as application developer, DApps ( Distributed Application) development can be learned.
A Dapp, or decentralized application, is a software application that runs on a distributed network. It’s not hosted on a centralized server, but instead on a peer-to-peer decentralized network. — Source
#10 What is Bitcoin ?
Bitcoin is a decentralised digital currency that enables instant payments to anyone, anywhere in the world.
Bitcoins have all the desirable properties of a money-like good. They are :
difficult to counterfeit.
Bitcoin uses public-key cryptography, peer-to-peer networking, and proof-of-work to process and verify payments.
In contrast to the internet, which took two decades to develop and yet another decade to become commercial, the blockchain ecosystem is developing more rapidly as an economic platform even though there are challenges exist like scalability, transaction speed, privacy and regulation.
Just like how Internet has revolutionised the information sharing, Blockchain will do that for value sharing!
10 FAQs on Blockchain Technology every Agile professionals should know was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.