Blockchain can be defined as a chain of blocks that contains information. The technique is intended to timestamp digital documents so that it’s not possible to backdate them or temper them. The purpose of blockchain is to solve the double records problem without the need for a central server.
The blockchain is used for the secure transfer of items like money, property, contracts, etc, without requiring a third-party intermediary like a bank or government. Once data is recorded inside a blockchain, it is very difficult to change it.
The blockchain is a software protocol (like SMTP is for email). However, Blockchains could not be run without the Internet. It is also called meta-technology as it affects other technologies. It is comprised of several pieces: a database, software application, some connected computers, etc.
Sometimes the term is used for Bitcoin Blockchain or The Ethereum Blockchain, and sometimes, it’s other virtual currencies or digital tokens. However, most of them are talking about distributed ledgers.
What Blockchain is NOT!
Now in this Blockchain Technology tutorial, let’s study the Blockchain architecture by understanding its various components:
What is a Block?
A Blockchain is a chain of blocks that contain information. The data which is stored inside a block depends on the type of blockchain.
For Example, A Bitcoin Block contains information about the Sender, Receiver, number of bitcoins to be transferred.
Bitcoin Block
The first block in the chain is called the Genesis block. Each new block in the chain is linked to the previous block.
Understanding SHA256 – Hash
A block also has a hash. A can be understood as a fingerprint which is unique to each block. It identifies a block and all of its contents, and it’s always unique, just like a fingerprint. So once a block is created, any change inside the block will cause the Hash to change.
What is SHA256 Hash
Therefore, the Hash is very useful when you want to detect changes to intersections. If the fingerprint of a block changes, it does not remain the same block.
Each Block has
Hence, all blocks are contained hashes of previous blocks. This is the technique that makes a blockchain so secure. Let’s see how it works –
Assume an attacker can change the data present in Block 2. Correspondingly, the Hash of the Block also changes. But Block 3 still contains the old Hash of Block 2. This makes Block 3, and all succeeding blocks invalid as they do not have the correct Hash of the previous block.
Therefore, changing a single block can quickly make all following blocks invalid.
Proof of Work
Hashes are an excellent mechanism to prevent tempering, but computers these days are high-speed and can calculate hundreds of thousands of hashes per second. In a matter of a few minutes, an attacker can tamper with a block and then recalculate all the hashes of other blocks to make the blockchain valid again.
To avoid the issue, blockchains use the concept of Proof-of-Work. It is a mechanism that slows down the creation of the new blocks.
A proof-of-work is a computational problem that takes a certain to effort to solve. But the time required to verify the results of the computational problem is very less compared to the effort it takes to solve the computational problem itself.
In the case of Bitcoin, it takes almost 10 minutes to calculate the required proof-of-work to add a new block to the chain. Considering our example, if a hacker would to change data in Block 2, he would need to perform proof of work (which would take 10 minutes) and only then make changes in Block 3 and all the succeeding blocks.
This kind of mechanism makes it quite tough to tamper with the blocks, so even if you tamper with even a single block, you will need to recalculate the proof-of-work for all the following blocks. Thus, hashing and proof-of-work mechanisms make a blockchain secure.
Distributed P2P Network
However, there is one more method which is used by blockchains to secure themselves, and that’s by being distributed. Instead of using a central entity to manage the chain, Blockchains use a distributed peer-peer network, and everyone is allowed to join. When someone enters this network, he will get the full copy of the blockchain. Each computer is called a node.
Let’s see what happens when any user creates a new block. This new block is sent to all the users on the network. Each node needs to verify the block to make sure that it hasn’t been altered. After complete checking, each node adds this block to their blockchain.
All these nodes in this network create a consensus. They agree about what blocks are valid and which are not. Nodes in the network will reject blocks that are tampered with.
So, to successfully tamper with a blockchain
How Does Blockchain Technology Work?
Blockchain Transaction Process
Step 1) Some person requests a transaction. The transaction could be involved cryptocurrency, contracts, records, or other information.
Step 2) The requested transaction is broadcasted to a P2P network with the help of nodes.
Step 3) The network of nodes validates the transaction and the user’s status with the help of known algorithms.
Step 4) Once the transaction is complete, the new block is then added to the existing blockchain. In such a way that is permanent and unalterable.
Why do we need Blockchain?
Here are some reasons why Blockchain technology has become so popular.
Resilience: Blockchains is often replicated architecture. The chain is still operated by most nodes in the event of a massive attack against the system.
Time reduction: In the financial industry, blockchain can play a vital role by allowing the quicker settlement of trades as it does not need a lengthy process of verification, settlement, and clearance because a single version of agreed-upon data of the shared ledger is available between all stack holders.
Reliability: Blockchain certifies and verifies the identities of the interested parties. This removes double records, reduces rates, and accelerates transactions.
Unchangeable transactions: By registering transactions in chronological order, Blockchain certifies the unalterability of all operations, which means when any new block has been added to the chain of ledgers, it cannot be removed or modified.
Fraud prevention: The concepts of shared information and consensus prevent possible losses due to fraud or embezzlement. In logistics-based industries, blockchain as a monitoring mechanism act to reduce costs.
Security: Attacking a traditional database is the bringing down of a specific target. With the help of Distributed Ledger Technology, each party holds a copy of the original chain, so the system remains operative, even a large number of other nodes fall.
Transparency: Changes to public blockchains are publicly viewable to everyone. This offers greater transparency, and all transactions are immutable.
Collaboration – Allows parties to transact directly with each other without the need for mediating third parties.
Decentralized: There are standards rules on how every node exchanges the blockchain information. This method ensures that all transactions are validated and all valid transactions are added one by one.
Blockchain versions
Now in this Blockchain development tutorial, let’s learn about Blockchain versions.
Blockchain Versions
Blockchain 1.0: Currency
The implementation of DLT (distributed ledger technology) led to its first and obvious application: cryptocurrencies. This allows financial transactions based on blockchain technology. It is used in currency and payments. Bitcoin is the most prominent example in this segment.
Blockchain 2.0: Smart Contracts
The new key concepts are Smart Contracts, small computer programs that “live” in the blockchain. They are free computer programs that execute automatically and check conditions defined earlier like facilitation, verification, or enforcement. It is used as a replacement for traditional contracts.
Blockchain 3.0: DApps:
DApps is an abbreviation of decentralized application. It has its backend code running on a decentralized peer-to-peer network. A DApp can have frontend Blockchain example code and user interfaces written in any language that can make a call to its backend, like a traditional App.
Blockchain Variants
Public:
In this type of blockchain, ledgers are visible to everyone on the internet. It allows anyone to verify and add a block of transactions to the blockchain. Public networks have incentives for people to join and are free for use. Anyone can use a public blockchain network.
Private:
The private blockchain is within a single organization. It allows only specific people of the organization to verify and add transaction blocks. However, everyone on the internet is generally allowed to view it.
Consortium:
In this Blockchain variant, only a group of organizations can verify and add transactions. Here, the ledger can be open or restricted to select groups. Consortium blockchain is used cross-organizations. It is only controlled by pre-authorized nodes.
The blockchain is used for the secure transfer of items like money, property, contracts, etc, without requiring a third-party intermediary like a bank or government. Once data is recorded inside a blockchain, it is very difficult to change it.
The blockchain is a software protocol (like SMTP is for email). However, Blockchains could not be run without the Internet. It is also called meta-technology as it affects other technologies. It is comprised of several pieces: a database, software application, some connected computers, etc.
Sometimes the term is used for Bitcoin Blockchain or The Ethereum Blockchain, and sometimes, it’s other virtual currencies or digital tokens. However, most of them are talking about distributed ledgers.
What Blockchain is NOT!
- Blockchain is not Bitcoin, but it is the technology behind Bitcoin
- Bitcoin is the digital token, and the blockchain is the ledger to keep track of who owns the digital tokens
- You can’t have Bitcoin without blockchain, but you can have a blockchain without Bitcoin.
Now in this Blockchain Technology tutorial, let’s study the Blockchain architecture by understanding its various components:
What is a Block?
A Blockchain is a chain of blocks that contain information. The data which is stored inside a block depends on the type of blockchain.
For Example, A Bitcoin Block contains information about the Sender, Receiver, number of bitcoins to be transferred.
Bitcoin Block
The first block in the chain is called the Genesis block. Each new block in the chain is linked to the previous block.
Understanding SHA256 – Hash
A block also has a hash. A can be understood as a fingerprint which is unique to each block. It identifies a block and all of its contents, and it’s always unique, just like a fingerprint. So once a block is created, any change inside the block will cause the Hash to change.
What is SHA256 Hash
Therefore, the Hash is very useful when you want to detect changes to intersections. If the fingerprint of a block changes, it does not remain the same block.
Each Block has
- Data
- Hash
- Hash of the previous block
Hence, all blocks are contained hashes of previous blocks. This is the technique that makes a blockchain so secure. Let’s see how it works –
Assume an attacker can change the data present in Block 2. Correspondingly, the Hash of the Block also changes. But Block 3 still contains the old Hash of Block 2. This makes Block 3, and all succeeding blocks invalid as they do not have the correct Hash of the previous block.
Therefore, changing a single block can quickly make all following blocks invalid.
Proof of Work
Hashes are an excellent mechanism to prevent tempering, but computers these days are high-speed and can calculate hundreds of thousands of hashes per second. In a matter of a few minutes, an attacker can tamper with a block and then recalculate all the hashes of other blocks to make the blockchain valid again.
To avoid the issue, blockchains use the concept of Proof-of-Work. It is a mechanism that slows down the creation of the new blocks.
A proof-of-work is a computational problem that takes a certain to effort to solve. But the time required to verify the results of the computational problem is very less compared to the effort it takes to solve the computational problem itself.
In the case of Bitcoin, it takes almost 10 minutes to calculate the required proof-of-work to add a new block to the chain. Considering our example, if a hacker would to change data in Block 2, he would need to perform proof of work (which would take 10 minutes) and only then make changes in Block 3 and all the succeeding blocks.
This kind of mechanism makes it quite tough to tamper with the blocks, so even if you tamper with even a single block, you will need to recalculate the proof-of-work for all the following blocks. Thus, hashing and proof-of-work mechanisms make a blockchain secure.
Distributed P2P Network
However, there is one more method which is used by blockchains to secure themselves, and that’s by being distributed. Instead of using a central entity to manage the chain, Blockchains use a distributed peer-peer network, and everyone is allowed to join. When someone enters this network, he will get the full copy of the blockchain. Each computer is called a node.
Let’s see what happens when any user creates a new block. This new block is sent to all the users on the network. Each node needs to verify the block to make sure that it hasn’t been altered. After complete checking, each node adds this block to their blockchain.
All these nodes in this network create a consensus. They agree about what blocks are valid and which are not. Nodes in the network will reject blocks that are tampered with.
So, to successfully tamper with a blockchain
- You will need to tamper with all blocks on the chain
- Redo the proof-of-work for each block
- Take control of greater than 50% of the peer-to-peer network.
How Does Blockchain Technology Work?
Blockchain Transaction Process
Step 1) Some person requests a transaction. The transaction could be involved cryptocurrency, contracts, records, or other information.
Step 2) The requested transaction is broadcasted to a P2P network with the help of nodes.
Step 3) The network of nodes validates the transaction and the user’s status with the help of known algorithms.
Step 4) Once the transaction is complete, the new block is then added to the existing blockchain. In such a way that is permanent and unalterable.
Why do we need Blockchain?
Here are some reasons why Blockchain technology has become so popular.
Resilience: Blockchains is often replicated architecture. The chain is still operated by most nodes in the event of a massive attack against the system.
Time reduction: In the financial industry, blockchain can play a vital role by allowing the quicker settlement of trades as it does not need a lengthy process of verification, settlement, and clearance because a single version of agreed-upon data of the shared ledger is available between all stack holders.
Reliability: Blockchain certifies and verifies the identities of the interested parties. This removes double records, reduces rates, and accelerates transactions.
Unchangeable transactions: By registering transactions in chronological order, Blockchain certifies the unalterability of all operations, which means when any new block has been added to the chain of ledgers, it cannot be removed or modified.
Fraud prevention: The concepts of shared information and consensus prevent possible losses due to fraud or embezzlement. In logistics-based industries, blockchain as a monitoring mechanism act to reduce costs.
Security: Attacking a traditional database is the bringing down of a specific target. With the help of Distributed Ledger Technology, each party holds a copy of the original chain, so the system remains operative, even a large number of other nodes fall.
Transparency: Changes to public blockchains are publicly viewable to everyone. This offers greater transparency, and all transactions are immutable.
Collaboration – Allows parties to transact directly with each other without the need for mediating third parties.
Decentralized: There are standards rules on how every node exchanges the blockchain information. This method ensures that all transactions are validated and all valid transactions are added one by one.
Blockchain versions
Now in this Blockchain development tutorial, let’s learn about Blockchain versions.
Blockchain Versions
Blockchain 1.0: Currency
The implementation of DLT (distributed ledger technology) led to its first and obvious application: cryptocurrencies. This allows financial transactions based on blockchain technology. It is used in currency and payments. Bitcoin is the most prominent example in this segment.
Blockchain 2.0: Smart Contracts
The new key concepts are Smart Contracts, small computer programs that “live” in the blockchain. They are free computer programs that execute automatically and check conditions defined earlier like facilitation, verification, or enforcement. It is used as a replacement for traditional contracts.
Blockchain 3.0: DApps:
DApps is an abbreviation of decentralized application. It has its backend code running on a decentralized peer-to-peer network. A DApp can have frontend Blockchain example code and user interfaces written in any language that can make a call to its backend, like a traditional App.
Blockchain Variants
Public:
In this type of blockchain, ledgers are visible to everyone on the internet. It allows anyone to verify and add a block of transactions to the blockchain. Public networks have incentives for people to join and are free for use. Anyone can use a public blockchain network.
Private:
The private blockchain is within a single organization. It allows only specific people of the organization to verify and add transaction blocks. However, everyone on the internet is generally allowed to view it.
Consortium:
In this Blockchain variant, only a group of organizations can verify and add transactions. Here, the ledger can be open or restricted to select groups. Consortium blockchain is used cross-organizations. It is only controlled by pre-authorized nodes.