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Concepts of Blockchain

In my previous post, I introduced blockchain technology and noted in my future post I will be writing about how Blockchain works, and the value of adopting this fantastic technology. However, I felt logical to explain the essential blockchain definitions and concepts first. So, in this post, I have attempted to explain five such vital concepts. At its basic level, blockchain is a new class of information technology that supports fundamentally multiple technology concepts that combines cryptography with distributed computing. They are:

1.    Distributed Secure Database

The Blockchain can be understood from a technology perspective merely as a distributed secure database. A model that supports a network of computers to collaborate towards maintaining a shared, secure database. This database consists of a sequence of blocks and each one record a data which is encrypted. The computer, also called node, on that blockchain network validates the transactions and add them to the block they are building. Then, it broadcasts the completed block to other nodes so that all have the copy of the database.

2.   Consensus Mechanism

In blockchain, there is no centralized component to verify the authorization to the database, so it depends on the consensus algorithm. The consensus algorithm may differ depending on the industry segments for which the blockchain application is used. The concept is that to make an entry on to database all the participating node on the blockchain must agree about its state. It prevents one node to alter without the consensus of others. Once completed, a block goes into the blockchain as a permanent record. There is a countless number of such blocks in the blockchain all connected to each other by links in a chain by a proper linear chronological order.

3.    Distributed Shared Ledger

The distributed permanent secure database together with a consensus mechanism makes blockchain suitable for the storage of synchronized data across multiple geographical locations without any centralized administrator or centralized data storage. This secure, trusted, synchronized and distributed data stored in the distributed database maintained by the distributed network of computers are called distributed shared ledger.

These ledgers can be used to store data of tangible assets such as car and home, intangible assets such as currencies and votes or any other form of valuable information. It enables the replacement of a multiplicity of the private database within each organization with one shared and trusted database accessible by all parties involved. As an example, different healthcare provider collaborates and share a single ledger to cater to patient needs.

4.    Smart Contracts

The blockchain is not just a database, and it is more than that. It enables to automate the collaboration in the form of an agreement, or set of rules that govern a business transaction without human interaction is called a smart contract. The smart contract is a computer code stored inside the blockchain and executed automatically as part of a transaction. It is a self-executing contract written in the lines of code. Like any other computer program, it takes input that executes the code and provides the output. As an example, a smart contract written can accept input as a bank balance of a person and increases and decreases the interest rate. By executing automatically such basic operations that are tamper-proof, blockchain removes the intermediate third-party institution with high-level of trust.

5.    Mining, Miners, and Proof of Work

Mining is the process of adding transactions to the existing shared distributed ledger of blockchain adhering to smart contract set of rules and then distributed among all users of the blockchain after suitable consensus mechanism. The term is best known for its association with bitcoin, though other technologies using the blockchain employ mining. Bitcoin rewards participants also called Miners who run mining operations with more bitcoins. Because, mining is typically done on a dedicated computer, as it requires a fast CPU, as well as higher electricity usage and more heat generated than typical computer operations. Miners principal responsibility is to validate and approve every block contains transactions that get added to the blockchain. It is called a Proof of Work (PoW) in that every participant is challenged to solve the puzzle. The first team (Miners) that solves the problem wins.

Thank you for reading so far. You made it. I want to explain five more topics but will reserve it for my next post. Stay tuned! 

Introducing Blockchain Technology

Blockchain means many things to many people. For developers, it is a set of protocols and encryption technology for storing data securely. For business, it is a distributed ledger technology responsible for the explosion of new digital currency. For the technologist, it is the driving force for transactions like what the internet did for information. Whatever the way it is perceived, blockchain is a fascinating technology that enables first time in the history for the humans anywhere in the world to trust, collaborate and cooperate.

So, what is Blockchain?

Blockchain- defined as a peer-to-peer shared, immutable, distributed ledger infrastructure that facilitates the process of recording transactions and tracking assets. An asset can be tangible — a house, a car, cash, land — or intangible like intellectual property, such as patents, copyrights, or branding. Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs by disintermediation of centralized institution.

What is the difference between Blockchain and Bitcoin?

Bitcoin, the digital currency launched in 2009 by a mysterious person (or persons) known by Satoshi Nakamoto, is one solution that has been developed to address the challenges and high cost associated with the current transaction system. Unlike traditional currencies issued by central banks, Bitcoins have no central monetary authority. They are not printed in papers like dollars and yen, but they are transacted by people and businesses running a peer-to-peer computer network, akin to the network that underpins BitTorrent and Skype. Bitcoin has several advantages over the current transaction system including:

• Cost-effective by eliminating the need for intermediaries

• Efficient by recording transaction once and having it available for all parties through the distributed network.

• Secure by ensuring the transaction is not changed but only can be reversed with other transaction, in which case both transactions are visible

The Bitcoin is a blockchain application. Bitcoin and Blockchain are not the same. Think of blockchain as a platform or system software such as NodeJS, and Bitcoin is an application that runs on top of it. Blockchain provides the means for securely storing Bitcoin transactions and is the first use case of the blockchain. As such today thousands of such cryptocurrencies (https://coinmarketcap.com/all/views/all/) application such as Bitcoin is developed using blockchain technologies and the numbers are growing every day. Likewise, many different business applications can run on top of blockchain to store transactions as relevant to that application. As an example, the Toronto, Canada based company ‘ReliablyME’ is a blockchain based application that records and tracks social contracts as digital promises (IOUs) from any API-integrated application to award users with social credit credentials that demonstrate their character and authenticate self and social worth. The idea is to build an online network for social actions and social branding to help millions of people get into schools, employment, housing, insurance, and credit by earning social credit credentials based on their track record of fulfilling commitments.

Stay tuned for the future posts of my attempt explaining how Blockchain works, and the value of adopting this fantastic technology.