What is blockchain? Guide for beginners

[zombieroadie]

https://criptointercambio.com/blog/en/educacion/education/what-is-blockchain/
It's rather hard to understand the blockchain technology when you have just entered the crypto world. Hope this helps!

[Bianca K]

Understanding Blockchain

   Blockchain technology was first introduced when Satoshi Nakamoto, released the article Bitcoin: A Peer to Peer Electronic Cash System in 2008. This article described a “purely peer-to-peer version of electronic cash” known as Bitcoin. There were many updations in Blockchain Technology in the last decade.
   Blockchain, this technology was initially introduced to deal with Bitcoins only. In mid 2014, the world started to realise that Blockchain can be used along with other cryptocurrencies. Government agencies are trying to shift traditional banking towards Blockchain concept.

Why Blockchain was needed?
   The need for Blockchain arised to avoid Double Spending.
Consider a scenario, Bob wants to deal with two different people with digital coins. He buys goods from Lisa using Digital coin. For him to do the coin transaction, he should have the copy of coin data stored on his server. Now he decides to deal with Alice using the same digital coins.
Both Lisa and Alice will think that they have received the money and provide him the goods. There is no means for them to check the authenticity of the payment.

This scenario can be termed as Double Spending wherein the sender can pay same money to different entities.

Double Spending was a common as there was no centralized ledger records to verify the payment.

Blockchain serves as this Centralised Ledger

Now, Bob will send money to the centralised authority, in general terms Bank, who will verify the authenticity of the payment and process it.

So what exactly is Blockchain?
As the name suggests, Blockchain is a list of records or ledgers chained together with the help of Cryptography. Each block contains cryptographic data of the previous block, timestamp and transaction data. With every transaction, a block is added to the chain. The data is blockchains is Decentralised and available on the Internet. So any person can verify the payment but cannot modify it. Only Banks or Government approved authority have the right to alter the data.

Is Blockchain safe to use?
   Blockchain is made secure because of the following -
Blockchain is encrypted and secure
   Blockchain data is encrypted using mathematical algorithms. This process is known as Mining. The process makes sure the actual data is kept hidden from potential hackers.
Blockchain is Public
   The transaction is public that means transactions are transparent but people involved in it are anonymous. No one can cheat or scam the system.
Blockchain is Decentralised
   The servers are located all over the world. That means data is located at several nodes and even if one node is corrupted, the data can be recovered easily.


How Blockchain works?
   Let us understand how Blockchain works -

Step 1: Data to be transacted
   Each block holds information about Sender, Receiver, No. of bitcoins to be transferred
The first such block in blockchain is called Genesis block. As it is the first block, Genesis block is hardcored in the software of the Blockchain

Step 2: Chaining the blocks
   Each block of data is chained using cryptography methods. Every block is assigned with a unique (digital key known as) signature. With every change in a block, even just a single digit change, the block will get a new signature.

Step 3: Hashing
   Hashing comes into the picture even if a single digit or a space is changed in the block data. A cryptographic hash function is a very complicated formula that takes any string of input and turns it into a unique 64-digit string of output. This function is used by Blockchains to assign signatures for the blocks which will be unique based on the input provided.

Step 4: Mining
A block is identified by its signature. In order to get connected in blockchain, the signature must follow certain rules. Alternate signatures are found using trial and error method.
Mining is a process to change the hash code and nonce of the block data so that the blocks are matching to the already established chain rules. A large amount of energy is spent by Miners in the form of computational power to change the block composition (nonce) and hashing it until they find an eligible signature (output).   

Step 5: How the blockchain is immutable?
   As explained in Step 3, Every Block is verified by its signature. If a signature changes, the block gets disconnected from the chain. Imagine a hacker has hacked one block. This changes the signature of the block and in order to link the block back to chain, Mining process has to be done. Since hacker won’t be having details of other blocks and the trial and error method has to be done, linking the corrupted block back to chain is not an easy option.


Advantages of Blockchain:

Decentralisation - The data is located on several nodes at different locations. This helps to recover the data easily in case of any failure or corruption.
Transparency - Blockchains are available to public, so the transaction data is transparent and trust is created
Immutability - Once block is created, it is difficult to change the data and align the block again to the chain. This makes the system Immutable
Highly secure - As blocks are changed using cryptography, the data is very secure even though it is transparent to the public.
Faster Dealings - Blockchain simplifies the process of Verifying, and Clearance of transactions. In case, the dealings are made faster than any traditional banking system.
Cost Saving - Third parties are not involved for verification. Thus the overhead cost of such third parties is reduced.

Disadvantages of Blockchain:
Network Size - Blockchain requires a large network to work efficiently.
Unavoidable Security flaw - If more than 50% of the nodes are corrupted with the same data, the data is considered as true. There is no means to verify the data authenticity.
Energy Consumption - blockchains use excessive energy


Conclusion -
   Today, the world has found applications of blockchain technology in several industries, where the trust without the involvement of a centralized authority is desired. So welcome to the world of Blockchain.

[Haider2.0]

Thanks for sharing this information, Surely it will help new members like me to expand their knowledge about crypto world and will help them work on this forum more efficiently.