Blockchain: Zero to Hero
Recently, there has been an immense rise in the use of the word “crypto” especially for cryptocurrency, and how a lot of folks became millionaires by investing in crypto. Before diving into cryptocurrency, let us try to understand what the fuss is all about. Cryptocurrency works on top of blockchain which works on top of cryptography. If you have been following banking, investing, or cryptocurrency over the last ten years, you may have heard the term “blockchain,” the record-keeping technology behind the Bitcoin network.
What is Blockchain?
In simple terms, It is a database. Blockchain seems complicated, and it definitely can be, but its core concept is really quite simple. But again you might be wondering if we already have databases, then why blockchain?
Spreadsheets, ledgers, databases either store personal records or specific entries made by some authorized personnel. What if we want one decentralized system where everyone can enter their accounts and there is no discrepancy?
➡️ ENTER BLOCKCHAIN
A blockchain collects information together in groups, also known as blocks, that hold sets of information. When filled, blocks have certain storage capacities and are chained onto the previously filled block, forming a chain of data known as the “blockchain.” One of the key parts of the block apart from the data stored is the address to the last block, in the form of a hash. A hash function is a mathematical function that converts a numerical input value into another compressed numerical value. The input to the hash function is of arbitrary length but the output is always of fixed length. Values returned by a hash function are called the message digest or simply hash values.
When there is a central authority or a person to take care of these transactions and maintain them in a ledger or a database, the chances of human error and corruption are pretty high. To tackle this issue, blockchain uses the concept of decentralization.
Decentralization
In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group) to a distributed network. Decentralized networks strive to reduce the level of trust that participants must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network.
How are transactions processed and trust is established?
As soon as a new transaction is entered, it is broadcasted to a network of peer-to-peer computers present worldwide. This is where cryptography comes in. This network of computers finds the legitimacy of the transaction by solving equations. For cryptography in blockchain, the public key is used as the address of the person. The public key is visible globally, i.e. it is visible to any participant of the participant. The private key is a secret value and is used to access that address data and authorize any of the actions for the ‘address’, which are generally transactions.
Once this is done, the verified transactions are then clustered together into blocks. These blocks are then put together with the main list or the chain of blocks and that's how record keeping of various transactions takes place. Each block depicts a transaction that was proven to be legitimate. Once this is done, the transaction is complete. New blocks are always stored linearly and chronologically.
How is this fraud-proof?
The blocks are immutable. It is impossible to alter the data present in the blocks already appended to the chain. To do that, one must solve the equation with the right keys which fairly impossible because to crack such a lengthy key would take million years even for a computer.
Secondly, as the data is altered, the hash of the block changes which leads to discrepancy or error in the chain itself. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well. Hence, the altered block automatically does not fit in the chain itself.
What is Mining?
‘Blockchain mining’ is used to describe the process of adding transaction records to the blockchain. This process of adding blocks to the blockchain is how transactions are processed and how money moves around securely on Bitcoins.
This process of Blockchain mining is generally performed by a community of people around the world called ‘Blockchain miners.’
Anyone can apply to become a Blockchain miner. These Blockchain miners install and run a special Blockchain mining software that enables their computers to communicate securely with one another. Once a computer installs the software, joins the network, and begins mining bitcoins, it becomes what is called a ‘node.’ Together, all these nodes communicate with one another and process transactions to add new blocks to the blockchain which is commonly known as the bitcoin network. This bitcoin network runs throughout the day. It processes equivalent to millions of dollars in bitcoin transactions and has never been hacked or experienced downtime since its launch in 2009.
How can you mine Bitcoins?
- On the cloud
- On your own system
Conclusion
Blockchain has immense potential from cryptocurrency (as we know it now) finance, to tackle corruption, supply chain management, and whatnot.
“The true battle is between fiat and crypto. On balance, I support the latter.”
~ Elon Musk.
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