What is blockchain technology?
What is blockchain and the technology behind it? This is one of the hot topics today being discussed among tech loving people and people interested in cryptocurrency. Blockchain is a brilliant invention and brainchild of a person, Satoshi Nakamoto. Blockchain has in a way, created the basis of the new type of internet. Initially, this technology was devised for cryptocurrency Bitcoin, but now many uses of this technology are being found in the tech industry.
As described in the previous article, on what is cryptocurrency, blockchain is used to write/ enter entries into a record information, and this record is continuously updated and amended by a group of users. To understand blockchain more easily, let us try it looking it analogously with Wikipedia. As stated, entries in a blockchain are updated and amended by a group of users, likewise Wikipedia pages and entries are also not a work of a single user. This means, no one person is controlling the information.
Taking the comparison further, both blockchain and Wikipedia run on internet. Wikipedia runs via world wide web (www) using a client server network model. When a user accesses a page on Wikipedia, the user gets an updated version of the 'master copy' of the entry on Wikipedia. The Wikipedia uses a centralized database, the control of which lies in the hands of the owners and management for updates.
The blockchain database is not centralized but a distributed database. For Wikipedia, the master copy is edited on a server and all the users of the website will see the updated version. In the case of a blockchain, each node in the network is updating the record independently, with the most popular record as the effective official record as a master copy. In simple words, in a blockchain the transactions are broadcast and every node in the network creates its own updated record.
How does blockchain technology work?
Blockchain is not a new technology, rather it is a combination of already established and proven technologies applied in a new way. Blockchains are built from the following 3 technologies:
- Private Key Cryptography – Identity
- P2P Network – System of Record
- Program (blockchain's protocol) - Platform
Now let us understand the above three technologies.
Let us say there are two people who wish to do a transaction through internet. Each person will hold a private key and a public key. This way there is a creation of a secure digital identity reference in blockchain. Identity is established on the ownership of a combination of private and public cryptographic keys. The combination of these keys creates a strong and fool proof ownership record in the form of a digital signature. This part takes care of the authentication of identity, but now there is a need of approving transactions. For this purpose we there is a need of a distributed network.
This distributed network is the underlying reason for the value of bitcoin blockchain technology. This distributed network consists of validators which unanimously agree to have witnessed the transaction, this approving and authenticating it.
Once the above two steps are done, a block – consisting of a digital signature, timestamp and other relevant information is broadcast to all the nodes of the network.
One must ask, that why there is a need of millions of computers to authenticate a transaction? Or why would someone allocate his/her computing resources to be a part of a massive network for validating a transaction occurring between other people? The answer to this is mining. Mining is based on an old philosophy of economics – tragedy of the commons.
With the help of blockchains, if you offer your computing resources to service the network, there is a reward on offer to that computing resource. So in a way it is a person's self interest that is utilized to take care of a public need. This is what we call protocol. In the case of bitcoin, the aim of protocol is to remove the use of same bitcoin for two or more separate transactions at the same time. To be able to remove duplicity, each bitcoin must be unique to be owned and have value. For this, each node in the network creates and maintains a history of transactions done.
For each blockchain, the way and amount of verifications done depends upon the blockchain's protocol.