To start with, let’s talk about the definition of the blockchain. Blockchain particularly refers to series of data records, each connected to the one before it. The most recent record in this chain would contain the history of the entire chain. Also, the domains of cryptography and data structures are used to design Cryptography.
The basic form of Blockchain was evolved from the concept of Hash tree. Blockchain helped to ensure that false data was not sent in a peer-to-peer network of computers to maintain and prove the integrity of data being shared.
Fig 1. Hash Tree (also known as Merkle Tree)
The concept of Distributed Blockchain was brought into existence by Satoshi Nakamato in the year 2008. It would have a secure history of data exchanges, utilization of a peer-to-peer network to time stamp and verify each exchange, and could be managed autonomously without a central authority. This became the backbone of Bitcoin. And in this manner, the blockchain we know today was born, as well as the world of cryptocurrencies.
Who is Satoshi Nakamato?
Is the name of a group of people or individual from Japan? Is it even a he? Or maybe the creator is a woman? Or maybe both. No one knows. All in all, this is a beautiful mystery that suits the complex and disruptive nature of blockchain. And you’ll never know…
How Does Blockchain Work?
So then, let’s recall few key features of Blockchain:
- A record of all data exchanges is maintained by a Blockchain, and this record in the cryptocurrency world is referred to as a “ledger” and each data exchange is a “transaction“. Every verified data exchange is added to the ledger as a “block”.
- To verify each transaction blockchain utilizes a distributed system — a P2P network of nodes
- Once verified and signed, the new transaction is added to the blockchain and cannot be altered.
Let’s now explore the concept of “keys”. With a set of cryptographic keys, an individual gets a unique identity. The keys are Private Key and Public Key, and together they are combined to give you a digital signature. Others in the network will be able to identify you using your public key. If you want to digitally sign and authorize different actions on behalf of your digital identity when used with your public key, Private Key are to be used.
The reason why the blockchain is so much admired is that:
- As it is decentralized, there’s no need owner
- The data is cryptographically stored inside
- No one can tamper with the data that is inside the blockchain as it is immutable
- It is transparent so one can track the data if they want to
Application of Blockchain:
Think of a bus company. We buy tickets using an app or the website. The processing fees of the transaction is being deducted by a credit card company. With blockchain, not only can the bus operator save on credit card processing fees, it can move the entire process to the blockchain.
The two parties involved in this transaction are the bus company and the passenger. Here, the ticket is a block, which will be added to a ticket blockchain. Every transaction on blockchain is unique, independently verifiable and un-falsifiable record, so can your ticket be. For example, a certain train route, or even the entire train network, comprising every ticket ever sold, every journey ever taken can be a part of the final ticket blockchain. But the key here is Blockchain is free. Blockchain can transfer, store money, and replace all processes and business models which rely on charging a small fee for a transaction.
In the world of Banking, the applications of blockchain are more obvious and the revolutionary changes are more imminent. Blockchain can eliminate all services offered by banks. Once the concept of Blockchain’s safe ledger without transaction fees is widely understood and implemented, almost every financial institution will be forced to change fundamentally or go bankrupt. After all, the business model of financial system is built in such a manner that they take small cut of your money for the privilege of facilitating a transaction.
Mr. Akshay Bhandari
Imperial Overseas Educational Consultants