Intermediate Knowledge
Last updated
Last updated
Blockchain is a constantly growing ledger that keeps a permanent record of all the transactions that have taken place in a secure, chronological, and immutable way. It can be used for the secure transfer of money, property, contracts, etc. without requiring a third-party intermediary such as bank or government. Blockchain is a software protocol, but it could not be run without the Internet (like SMTP is for email).
Let's breakdown the definition,
Ledger: It is a file that is constantly growing.
Permanent: It means once the transaction goes inside a blockchain, you can put up it permanently in the ledger.
Secure: Blockchain placed information in a secure way. It uses very advanced cryptography to make sure that the information is locked inside the blockchain.
Chronological: Chronological means every transaction happens after the previous one.
Immutable: It means as you build all the transaction onto the blockchain, this ledger can never be changed.
A blockchain is a chain of blocks which contain information. Each block records all of the recent transactions, and once completed goes into the blockchain as a permanent database. Each time a block gets completed, a new block is generated.
Note: A blockchain can be used for the secure transfer of money, property, contracts, etc. without requiring a third-party intermediary like bank or government. Blockchain is a software protocol, but it could not be run without the Internet (like SMTP used in email).
Blockchain technology can be integrated into multiple areas. The primary use of blockchains is as a distributed ledger for cryptocurrencies. It shows great promise across a wide range of business applications like Banking, Finance, Government, Healthcare, Insurance, Media and Entertainment, Retail, etc.
Blockchain technology has become popular because of the following.
Time reduction: In the financial industry, blockchain can allow the quicker settlement of trades. It does not take a lengthy process for verification, settlement, and clearance. It is because of a single version of agreed-upon data available between all stakeholders.
Unchangeable transactions: Blockchain register transactions in a chronological order which certifies the unalterability of all operations, means when a new block is added to the chain of ledgers, it cannot be removed or modified.
Reliability: Blockchain certifies and verifies the identities of each interested parties. This removes double records, reducing rates and accelerates transactions.
Security: Blockchain uses very advanced cryptography to make sure that the information is locked inside the blockchain. It uses Distributed Ledger Technology where each party holds a copy of the original chain, so the system remains operative, even the large number of other nodes fall.
Collaboration: It allows each party to transact directly with each other without requiring a third-party intermediary.
Decentralized: It is decentralized because there is no central authority supervising anything. There are standards rules on how every node exchanges the blockchain information. This method ensures that all transactions are validated, and all valid transactions are added one by one.
The blockchain technology was described in 1991 by the research scientist Stuart Haber and W. Scott Stornetta. They wanted to introduce a computationally practical solution for time-stamping digital documents so that they could not be backdated or tampered. They develop a system using the concept of cryptographically secured chain of blocks to store the time-stamped documents.
In 1992, Merkle Trees were incorporated into the design, which makes blockchain
more efficient by allowing several documents to be collected into one block. Merkle Trees are used to create a 'secured chain of blocks.' It stored a series of data records, and each data records connected to the one before it. The newest record in this chain contains the history of the entire chain. However, this technology went unused, and the patent lapsed in 2004.
In 2004, computer scientist and cryptographic activist Hal Finney introduced a system called Reusable Proof Of Work(RPoW) as a prototype for digital cash. It was a significant early step in the history of cryptocurrencies. The RPoW system worked by receiving a non-exchangeable or a non-fungible Hashcash based proof of work token in return, created an RSA-signed token that further could be transferred from person to person.
RPoW solved the double-spending problem by keeping the ownership of tokens registered on a trusted server. This server was designed to allow users throughout the world to verify its correctness and integrity in real-time.
Further, in 2008, Satoshi Nakamoto conceptualized the theory of distributed blockchains. He improves the design in a unique way to add blocks to the initial chain without requiring them to be signed by trusted parties. The modified trees would contain a secure history of data exchanges. It utilizes a peer-to-peer network for timestamping and verifying each exchange. It could be managed autonomously without requiring a central authority. These improvements were so beneficial that makes blockchains as the backbone of cryptocurrencies. Today, the design serves as the public ledger for all transactions in the cryptocurrency space.
The evolution of blockchains has been steady and promising. The words block and chain were used separately in Satoshi Nakamoto's original paper but were eventually popularized as a single word, the Blockchain, by 2016. In recent time, the file size of cryptocurrency blockchain containing records of all transactions occurred on the network has grown from 20 GB to 100 GB.
