Introduction to Blockchain
Blockchain Technology is a networking technology where peer to peer transactions can take place without any third party intervention. It is a new definition for transaction handling without any trusted party. It uses the concept of an open ledger for making the transactions authentic and reliable. These transactions are authenticated by Miners. To know how transactions are recorded in the blockchain, read the second article in the series here.
Who are Miners?
In a blockchain network, the list of transactions that take place between any two nodes is available at every node in the network. In this article, nodes and people in the network are used interchangeably and refer the same.
For example, if a transaction has happened from A to B then that transaction is updated at all the nodes.
There is a set of nodes (people) that have some special responsibility in this network who play a very important role. These nodes are referred as Miners. Every transaction must be approved by any node in that set. They play a very important role in the network, we can say they are the backbone of the network.
What do the Miners do? Why are they different from regular people in the network?
We now know Miners are responsible for authenticating the transactions. In the blockchain network, whenever a transaction is initiated by a person, it has to be first updated in that open ledger in the network. For updating the transaction in the open ledger, it has to be authentic and this is the job of the Miners. The Miner who grabs the transaction first works on authenticating that transaction and updating it in the ledger is rewarded. The well-known example of blockchain technology is Bitcoin, in case of bitcoin, on every successful update of the transaction, miners get rewarded with an extra bitcoin.
This is how a 3rd party authentication is not required in case of blockchain technology.
What is the concept of Open Ledger?
Imagine a balance sheet with debit and credit columns which is duplicated 1000’s of times across a network. And imagine that these copies are regularly updated. The data on these balance sheets are shared with all the copies in the network and continuously. In blockchain technology, the records are not confined to one location, which means the records are genuinely public and verifiable. Corruption and data manipulation cannot be done in this technology as the records are open. If a hacker wants to corrupt the data, he/she has to update all the 1000’s of copies exist in the network. This concept of copies of record available at every end of the network is called Open Ledger.
Advantages of Blockchain technology
- Durability and Reliability
- No possibility of data getting corrupted or manipulated
- No central body for maintaining the authentication
- Process integrity
- Low transaction cost
Characteristics of Blockchain technology
- Distributed network
The data is shared with all the nodes of the network, which means every person in the network has the access to the entire data in the network.
- Node to node transaction
Communication can be built easily between two nodes without any central node.
The data in the network is open to all the people in the network. Any updates and changes happened with the data is visible to the entire network
- Irretrievable of record
Once the transaction is committed, it is irreversible. The transaction after getting recorded in the database cannot be erased.
Drawbacks of Blockchain technology
- Personal verification: Each transaction has to be digitally signed and verified by a miner node.
- Redundancy: Redundancy is present because of the amount of computation that a blockchain requires. In a centralized process, a set of transactions are verified in one go, whereas in case of blockchain technology each transaction has to be verified separately.
- Lack of Privacy: All your transactions will be available to the public
Edit: Just published the second article in the series, Blockchain Technology Part-2. This article explains how transactions are recorded in a blockchain.