Summary of the Context
What is blockchain?
How blockchain works?
The three pillars of blockchain
Pros and cons of blockchain
Stuart Haber and W. Scott Stornetta first introduced the Blockchain concept in 1991, who wanted to develop a system that prevents tampering with record timestamps. Here we will see how blockchain has been used and developed over time and learn blockchain in the simplest of terms.
What is blockchain?
So, we will begin with what actually is blockchain. In simple terms, blockchain is a chain of blocks where each block consists of some digital information (for ex. a transaction detail). Here chain does not mean an iron chain but a more like a public database that is managed by a cluster of computers called nodes and not owned by a single entity.
We have digital information as blocks and in a series, it forms a blockchain. Now the question arises what is so special about this so-called industry-disrupting technology?
The blockchain network is a decentralized and distributed system. Since multiple nodes have access to blockchain and as an immutable ledger, the information in it can be accessed by anyone. Therefore, the blockchain is transparent by its very nature and those concerned are accountable for their actions.
Now you will think that the information stored is accessible by anyone and everyone so this can pose a great security risk, but no blockchain is highly secured and we will see that a little later.
Let us take an example of a transaction on Flipkart (an Indian e-commerce company which may not use the blockchain, it’s our assumption for better understanding)
- A user added some products in his/her cart and proceed for the payment. After the payment, his information like date, time, and the amount will get stored in a block.
- Also, information like his username (digital signature of the user and not the actual username), the company’s digital signature (ex. FLKT) also gets stored in the block.
- Now a hash code computed using a cryptographic algorithm gets attached with the block and the block will be added to the blockchain.
How blockchain works?
When some data is stored in a block, the block must also get attached to the blockchain. So blockchain as its name describes consists of multiple blocks attached together. Some events must happen before adding a block to a blockchain.
- A transaction must occur: After checking lots of products let’s say the user decided on a product and went on with the payment.
- Verification of the transaction: The transaction must be verified before gets added to a blockchain. This task is performed by a network of computers that check for all the details like time, date, and amount, whether it has performed in the way it stated.
- The transaction gets added to a block: A block can actually store thousands of transactions in it and not just a single transaction so when the user performs a transaction on Flipkart it gets stored in a block with the other transactions from different users.
- Block should have a hash: A hash code is a sequence of alphabets and numbers generated with a hash function. This code is unique for each block and provides the added security to the data.
- Finally, the block gets added to the blockchain by the nodes.
Credit : https://101blockchains.com/
To understand how it provide security we will see a hypothetical scenario:
If a transaction is done on an e-comm site and the amount is stored in the blockchain. An attacker may want to change or double the amount of purchase. But doing so will also change the hash code of the block and a block contains its hash code as well it’s previous block’s hash code as well. So, he has to now change the hash code of that previous block, in turn, he has to change the hash code of all the blocks in the chain.
This needs a lot of computing power which is not beneficial in the end hence tampering with blockchain is not easy. Also, all the nodes in the networks occupy the blockchain and have a copy of it so even if an attacker can change a blockchain he has to do it on every node in the network which is again not economical and needs computing power which is not easy to get even with the latest processors.
Now we will see the building block of block-chain
Three Pillars of the Blockchain Technology
Blockchain works on the concept of decentralized system. But before knowing about a decentralized system we must know a little about centralized system.
In a centralized system, a single entity stores all the data and provide the necessary services. For example, a client-server architecture is a centralized system where a server serves all the clients. Google search is the best example of a client-server model.
In a decentralized system, the data is not stored on a single entity. Instead, it is owned by everyone in the network. So a blockchain is distributed to every node in the network. For example, BitTorrent works on the concept of decentralization which allows content sharing over a P2P network.
Blockchain provides transparency as it provides all the data for public use but it is also the most misunderstood term in context with blockchain.
People think that providing transparency of information can allow attackers to access the information and tamper with the information in the blockchain. An attacker can change the transaction details and make the user pay any amount of their choice but that’s not the case.
Once something is entered into a blockchain it can’t be tampered or altered which makes it highly secure. This feature comes from the hash algorithm (Bitcoin uses SHA-256) which takes transaction as input and provide a string of fixed length. This string is called a hash code which is then attached to block and provide immutability.
Blockchain’s application is not limited to any one field, it’s usage as secure data storage has wide variety of application and we will some of them here:
Use in Cryptocurrency
Cryptocurrency is not maintained and managed by a central body like the physical currency. In countries with an unstable government, it can lead to currency failure, and for these places, the cryptocurrency which is a more stable currency can be useful. Using these, people can trade in goods all around the globe. But it doesn’t mean that its usage is beneficial only for these countries but normal people can also use it in exchange for goods.
Smart Contract Use
A smart contract is a computer code or program that is built into the block-chain. It contains the terms of negotiation of a deal and help in solving the issue of fraud. It’s not like a normal program written in a programming language but almost similar to it where if one party doesn’t fulfill it’s part of the deal this contract helps in getting the other party a safe side.
Use in Healthcare
Healthcare produces a large amount of data and has a wider application in bigdata. Storing medical records of the patient in a blockchain allows no tampering possible so provide complete trust. The medical history remains safe in the blockchain and gives assurance to the patient.
Pros and Cons of Blockchain
Every technology comes with some advantages and some disadvantages. Only looking at the positive side of a field can let to unpredictable outcomes.
Transactions are Secure and Private
Cost Reduction as no third part involved
Improved accuracy as no human interaction
Transparency in Technology
Decentralization makes it more secure
Can be used for mischief
Cryptocurrency is still not accepted worldwide because it involves risk
Low transaction per second
Cost involved in mining cryptocurrency
Blockchain improves accuracy as human involvement is minimum so it is safe from human error. All the transactions stored in blockchain are highly secured and private as no one can tamper with them. It is transparent to everyone where they can see the details but cannot change it. Millions of computers maintain a decentralized system that provides an extra edge in security.
Blockchain and Cryptocurrency like bitcoin has a history of misuse. They can be retrieved from someone’s account and can be used to buy illegal goods. Due to these factors, some governments usually bans the usage of bitcoin. Block-chain is secure but requires lots of computers connected together on the network to add blocks in the blockchain.
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