Developing Blockchain Application

The Complete Guide to Blockchain

If you happen to take interest in banking, investing, or cryptocurrency space you may be already familiar with the term “blockchain”, the record-keeping technology behind the Bitcoin network. However, if you are new to this technology then understanding its definition and concepts might take some time. A definition like this: “Blockchain technology is defined as a distributed, decentralized, public ledger that records theprovenance of a digital asset”, will make things complicated only.

Thus, to simplify the matter in this guide, we are going to explain to you what the blockchain technology is, how it works, and what makes it so unique. Read on to know everything about blockchain.

What is Blockchain?

At its most basic level, blockchain can be defined as a Distributed Ledger Technology (DLT) that makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. Essentially, it allows entities to store data globally on thousands of servers – while allowing anyone on the network view everyone else’s transactions in near real-time.

We can further simplify blockchain by dissecting it into “Block” and “Chain”. Here, with a block, we are referring to the digital information that is stored in a public database i.e. the chain. Each block in the chain contains several transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger.

The factors which make blockchain unique are that it is a shared and immutable ledger, so, anything built on it is completely transparent and everyone involved is accountable for their actions. Thus, in the blockchain, it is difficult or impossible to change, hack, or cheat the system.

How Blockchain works

Before we get into how a transaction is added into the blockchain, let us first understand the three important concepts of blockchain – blocks, nodes, and miners.

Blocks:

In a blockchain, multiple blocks are strung together and the moment a block stores new data it is automatically added to the blockchain. Each block has three basic elements; the ‘data’ in the block, a 32-bit whole number called ‘nonce’, and a 256-bit number wedded to the nonce called ‘hash.’ A nonce is generated when a block is created whereas the hash is generated by the nonce.

Miners:

Miners are a part of blockchain who use a process called mining to create new blocks on the chain. Every block of a blockchain has its unique nonce and hash, but it also references the hash of the previous block in the chain, which makes block mining a very difficult process, especially on large chains.

Finding a nonce that generates an accepted hash is an incredibly complex process because the nonce is only 32 bits and the hash is 256 bits, plus there are approximately 4 billion possible nonce-hash combinations that should be mined before the right one is found. Miners use special software to find that “golden nonce” after which their block is added to the chain. Once a block is successfully mined, all the nodes on the network acknowledge the changes.

Nodes:

Decentralization is one of the pillars of blockchain technology where the information is not stored by one single entity. No organization can own the chain, rather everyone in the network owns the information. Blockchain is a distributed ledger via the nodes connected to the chain.

In the world of cryptocurrencies, a blockchain comprises of a stable chain of blocks, each one storing a list of previously confirmed transactions. Blockchain functions as a decentralized ledger as its network is maintained by a myriad of computers spread across the world. This functionality allows each node to maintain a copy of the blockchain data, and they communicate with each other to ensure that they are all on the same page or block.

Now, let’s see how does a transaction gets into the blockchain. There are many key steps a transaction must go through before it is added to the blockchain.

  1. A transaction is requested and authenticated
  2. A block representing that transaction is created
  3. The newly created block is sent to every node in the network
  4. Nodes validate the transaction
  5. Nodes receive a reward for proof of work, typically in cryptocurrency
  6. The block is added to the existing blockchain
  7. The update is distributed across the network
  8. The transaction is complete.
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  • How Secure is Blockchain

    While no system or technology is “unhackable,” blockchain’s simple topology makes it the most secure technology today. Blockchain can resolve the issues of security and trust in many ways. First, new blocks are always stored linearly and chronologically i.e. every single time they are added to the end of the blockchain. Once a block has been added, it is very difficult to go back and change the contents of the block. That’s simply because each block contains its hash, along with the hash of the block before it.

    To understand the security paradigm of the blockchain let’s take a quick and simple example. Consider a hacker tries to alter your Amazon transactions so that you end up paying twice for your purchase. As soon as the hacker will edit the billing amount of your transaction, the block’s hash will change. Now, the next block in the chain will still hold the old hash, and the hacker would need to alter that block. However, the catch is, doing so would change that block’s hash. And the next, and so on.

    So, to alter even a single block, a hacker would need to change every single block available after it on the blockchain. But this isn’t easy, as recalculating all those hashes would take an enormous and improbable amount of computing power. In a nutshell, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.

    Applications of Blockchain

    Blockchain has a wide range of applications across almost every industry. Have a look at some of the most popular real-world applications of blockchain:

    Banking & Finance Industry

    Banking & finance industries are probably the two industries that can benefit the most by integrating blockchain into their business operations. Blockchain technology can make financial transactions faster, cheaper, transparent, and more secure.

    Let us see the different use cases of Blockchain for the banking and finance industry.

    • Real-Time Processing:The blockchain enables transactions to be made in real-time between users on the network. It allows any two parties present across any part of the world to transact directly with each other.

    • Highly Secure:The blockchain technology is built-in Public-key cryptography which involves digital identity verification with a high degree of confidence.

    • Middleman-free Transactions:Buying and selling stocks and shares has always involved many middlemen, such as brokers Blockchain incorporates a peer-to-peer model where every peer in the network is a server and client. This effectively eliminates the middlemen in processes, between users, saving a lot of time and money.

    • Smart Contracts:Smart contracts are a computer program that makes the share trading more secure than traditional contract law. They can eliminate the brokers in transactions and thereby reduce the number of transaction costs associated with contracting.

    • Smart Contracts:Smart contracts are a computer program that makes the share trading more secure than traditional contract law. They can eliminate the brokers in transactions and thereby reduce the number of transaction costs associated with contracting.

    • Faster & Simpler Cross Border Payments:This peer to peer technology allows financial institutions to do cross-border remittances easily flowing from one country to another with very cheap transaction fees and very less time required for it.

    Use in Cryptocurrency

    Blockchain is the heart of the cryptocurrencies like Bitcoin. Generally, the currencies are regulated and verified by a central authority, usually a bank or government. Under this system, a customer’s data and currency are technically at the whim of their bank or government. If the bank collapses or any unprecedented situation occurs, the value of its currency may be at risk. Due to all these worries, the cryptocurrency like Bitcoin was borne.

    Blockchain exempts the need of a central authority and allows Bitcoin and other cryptocurrencies to operate across a wide network of computers spread around the world. This distributed ledger not only reduces risk but also eliminates many of the processing and transaction fees. This also allows countries with unstable currencies to shift to a more stable currency and do business with different organizations, both domestically and internationally.

    Property Records

    Property disputes are common and the process of recording property rights is both burdensome and inefficient. Today, if you visit a local Recorder’s Office, you will need to submit a physical deed to a government employee who will manually enter the details into the country’s central database and public index. This whole process is not only costly & time-consuming but also prone to human error, which makes tracking property ownership less efficient.

    Blockchain has the potential to digitalize this whole manual process by eliminating the need for scanning documents and tracking down physical files in a local recording office. Once property ownership is stored and verified on the blockchain network, owners can blindly trust that their deed is accurate and permanent.

    Healthcare

    In the healthcare ecosystem, patient has all the rights to get accurate information. Maintaining privacy and security of medical information is very important. Health care providers have moved away from paper for recordkeeping and they leverage blockchain technology to store patient’s medical records, which are kept confidential. These personal health records could be encoded and stored on the blockchain with a private key, thereby keeping the patient in control of who can view that data. Patient diagnoses can also be stored, to track the patient’s health history.

    Supply Chain Management

    Blockchains increase the overall efficiency of supply chains by providing real and accurate identification of the location of items available on the supply chain. Thereby, it helps massively in preventing losses and monitoring the quality of food products while in production. The food industry is shifting towards the blockchain to increasingly track the path and safety of food throughout the farm-to-user journey.The real and accurate information about the products improves the reliability and efficiency of the supply chain system.

    Applications of Blockchain

    Every technology has certain advantages and disadvantages and the blockchain is no different. Let’s see some of the major pros and cons of this innovative technology.

    Pros:

    • Accuracy of the chain:Transactions on the blockchain network are approved and verified by thousands or millions of systems present in its network. This improves the accuracy of the stored information by removing human involvement in verification.

    • Cost reductions:Blockchain eliminates the need for third-party verification and reduces the operation costs by a huge margin. Also, there are no transaction fees involved in Bitcoin.

    • Decentralization:Blockchain does not store any of its information in a centralized location which can invite potential hackers. Instead, the blockchain uses a decentralization method in which all the data is copied and spread across a network of computers which makes blockchain a difficult entity to tamper with.

    • Efficient Transactions:Transactions taking place in blockchain are secure, private, and efficient. Whether local or global, transactions can be completed in a few minutes.

    • Transparency:Blockchain is open-source and transparent technology.

    Cons:

    • Technology Cost:Although blockchain can save customers money on various occasions, the technology itself is quite expensive to implement. Significant technology costs are associated with mining bitcoin.

    • Speed Inefficiency:The blockchain network can only manage 7 transactions per second as it takes about ten minutes to add a new block to the chain.

    • Illegal Activity:TBlockchain has a history of illegal trading activities on its network. There have been many instances in the past where illegal purchases were being made in bitcoins.

    • Hack Susceptibility:Newer cryptocurrencies and blockchain networks are susceptible to 51% attacks and it has been estimated that this percentage is going to increase in the coming years as hackers may simply rent computational power rather than buying all of the equipment.

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