Understanding Blockchain

Overview

With the evolution of Blockchain in the last decade and its prominence in various applications in recent years, there has been a need to start understanding it’s concepts. This blog covers the fundamentals of Blockchain and its prominent use cases and how ‘decentralization’ to its core helps challenge all things we know today.

What is a Blockchain?

Blockchain is a collection of records linked to each other, strongly resistant to alterations, protected using cryptography with a foundation of distributed processing and persistence.

Block

A Block is a collection of data and a unique alpha-numeric value generated using the data called Hash. It also contains Hash of previous block.Data – the data inside a block is dependent on the application, it could be anything based of the use case.Hash – it's a code generated based of the data in the block. It is always unique even though the data could still be same.Previous Hash – it's the hash code of the previous Block. This is how a chain of blocks are created in a Blockchain.

Each Block contains Hash of the previous Block to make it a Chain of blocks. This ‘previous hash’ helps to navigate the entire chain and makes it hard to tamper data of any block.The first block in the Blockchain won’t have a Previous Hash populated and it’s called a Genesis Block.

Immutable

Once a block is written, it’s immutable, meaning it cannot be altered. If a block is altered by any malicious actor, it’s Hash chances which is already recorded in the next chained block. For instance, if a malicious actor tries to make a change to the data on Block #2, it’s corresponding Hash value needs to be regenerated. If a Hash value is regenerated for Block #2, the Previous Hash in Block #3 gets delinked, hence breaking the Chain.

So theoretically if someone changes a block, the entire chain must be changed which requires heavy processing power. With today’s ever-growing capacity of processing power, it could theoretically still be possible to change the entire chain. To avoid that, any change to the Block must go through something called Consensus model.

Consensus

A Block can be added to the chain by a technique called Consensus model. The processing nodes which are distributed across, must reach a consensus before adding a new Block to the chain by solving a complex problem presented to them.This is a topic of its own and will be covered in a follow-up paper of its own.

Coins & Tokens

Blockchain Networks that run on thousands of computers and to motivate people to run them an incentive is needed. This incentive is the cryptocurrency in the form of Coin or Token.Coin: Uses it’s own Blockchain Network to keep track of all the data, operates independently of any other Platform.Token: Uses other Blockchain’s Network and infrastructure and not worry about how it’s validated on the Network. The Token just runs on other Blockchain’s Network.

Tokens Types:

Usage tokens: A token that is required to use a service.
Work tokens: A token that gives users the right to contribute work to a DAO and earn in exchange for their work
Security tokens: an external, tradable asset that is a representation of value in a system.

Public Key / Private Key

Cryptocurrencies are built upon public-key cryptography (PKC), a cryptographic system that uses pairs of keys: public keys, which are publicly known and essential for identification, and private keys, which are kept secret and are used for authentication and encryption.Public Key: A public key allows you to receive cryptocurrency transactions. It’s a cryptographic code that’s paired to a private key. While anyone can send transactions to the public key, you need the private key to “unlock” them and prove that you are the owner of the cryptocurrency received in the transaction.

Private Key: A private key gives you the ability to prove ownership or spend the funds associated with your public address. While you can generate a public key with a private key, doing the opposite is practically impossible because of the one-way “trapdoor” function. You can have any number of public keys connected to a private key.

Decentralized

Blockchain takes decentralization to a all-new level. Anything which has been centralized and managed by a central body is being re-imagined with Blockchain Networks. No single Person, Body or Entity owns any of the Networks rather everyone who is part of the Network owns it – weather it be infrastructure, processing, persistence, changes to the network or even decision making.

Infrastructure: Nodes are decentralized and not owned by an organization. Anyone who wants to make their systems contribute to the network can do so and get rewarded. Processing: A bunch of nodes are selected by the network to process a Block. Any of the nodes from the network can be chosen to process each Block and the selection of nodes depends on difference Blockchain Networks.Persistence: Once the Block is processed by distributed nodes, it’s written to the chain and is persisted on these distributed nodes. So, no one node holds the data.Political: Unlike traditional organizations where CEO and the Executive Leadership holds the decision-making power, Blockchain offers a decentralized way of making decision called DAO – Decentralized Autonomous Organization.

Sample Use Cases

Currency: Fiat currencies and its value is controlled by respective Central Banks and its value is determined by the amount of currencies governments decide to print. Cryptocurrencies on Blockchain Networks can operate without the need for a central authority.Voting: Voting with blockchain carries the potential to eliminate election fraud and boost voter turnout, as was tested in the November 2018 midterm elections in West Virginia. Using blockchain in this way would make votes nearly impossible to tamper with. The blockchain protocol would also maintain transparency in the electoral process, reducing the personnel needed to conduct an election and providing officials with nearly instant results. This would eliminate the need for recounts or any real concern that fraud might threaten the election.Property Records: In the present day, the process of recording property rights is both burdensome and inefficient. Today, a physical deed must be delivered to a government employee at the local recording office, where it is manually entered into the county’s central database and public index. This process is not just costly and time-consuming—it is also prone to human error, where each inaccuracy makes tracking property ownership less efficient. Blockchain has the potential to eliminate the need for scanning documents and tracking down physical files in a local recording office. If property ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and permanently recorded.Supply Chain: As in the IBM Food Trust example, suppliers can use blockchain to record the origins of materials that they have purchased. This would allow companies to verify the authenticity of not only their products but also common labels such as “Organic,” “Local,” and “Fair Trade.”Healthcare Records: Healthcare providers can leverage Blockchain to securely store their patients’ medical records. When a medical record is generated and signed, it can be written into the blockchain, which provides patients with the proof and confidence that the record cannot be changed. These personal health records could be encoded and stored on the blockchain with a private key, so that they are only accessible by certain individuals, thereby ensuring privacy.

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