A Blockchain is a continuously expanding list of records known as blocks that are connected together via cryptography. A cryptographic hash of the preceding block, a timestamp, and transaction data are all included in each block. The term “blockchain” has gotten a lot of attention recently. That is primarily due to the fact that it is the foundation of the world’s most well-known cryptocurrency, Bitcoin.
Many governments and major banks have decided to adopt the Blockchain concept for many of their traditional transactions. This framework’s applications and potential are enormous, and it is seen to be revolutionizing the way transactions are conducted in a variety of fields.
Table of Contents
Introduction
Blockchain has received a lot of attention in recent years. This has been dubbed the most disruptive technology of the decade by many. The financial markets, in particular, may be the hardest one to be hit.
Many industries, including healthcare, pharmaceuticals, insurance, smart properties, automobiles, and even governments, are adopting the technology.
However, the most successful Blockchain implementation to date is Bitcoin – A Peer-to-Peer Electronic Cash System, which also happens to be the first blockchain implementation. To comprehend blockchain technology, it is necessary to first comprehend the Bitcoin System’s concept and implementation.
You will learn what Blockchain is, its architecture, how it is implemented, and its different characteristics in this post. While describing the nuances of blockchain, I will use Bitcoin as an example.
The Blockchain architecture is not simple, and many people have created excellent papers, tutorials, and videos about it. These appeal to a wide range of people, from beginners to experts. In this video, I’ll focus on the fundamentals of blockchain architecture, with both beginners and experts in mind. Before digging into the blockchain, it’s necessary to understand why this new technology was created in the first place. The answer to this question is found in the concept of double-spending.
Satoshi Nakamoto first presented Bitcoin to the world in 2008 with a research-style white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System.
Bitcoin not only solved the double-spending problem, but also provided a slew of other benefits. One such benefit worth highlighting is transaction privacy. Satoshi, who established the system and transacted a few coins on it, is completely unknown to the rest of the world.
Imagine that in this age of social media, when everyone’s anonymity is at risk, the world hasn’t been able to figure out who Satoshi is yet. In truth, we have no idea if Satoshi is a single person or a collective. Googling it also revealed that Satoshi Nakamoto owns around $19.4 billion worth of bitcoins, which are now unclaimed in the Bitcoin system. So, what exactly is Bitcoin? Let’s have a look!
What is Bitcoin?
As you saw before, the bank keeps track of all transactions in a ledger. The bank keeps this ledger in its possession and maintains it. Satoshi suggested making this ledger public and community-maintained.
When you make such a ledger public, you’ll have to think about a lot of things. This ledger must be impenetrable to tampering so that no one may alter its contents. We’ll have to find out how to keep the anonymity because each entry in the ledger is publicly viewable; obviously, you don’t want the entire world to know that I paid you one million dollars.
Also, because there is only one single ledger that keeps track of all of the world’s transactions, the size of the book would be a major worry. It was not easy to provide a solution to these complexities, and that is what I am aiming here: to explain the basic architecture of Bitcoin in simple terms.
This tutorial is about the Blockchain, which is the fundamental architecture. To comprehend the Blockchain architecture, you must first comprehend a few essential characteristics upon which it is built. So, let’s begin with PKI, or Public Key Cryptography.
Public Key Cryptography
Asymmetric cryptography is sometimes known as public-key cryptography or PKI. It employs two key pairs: public and private. A key is a lengthy binary number that is used to unlock a door. The public key is widely distributed and, as the name implies, really public. The private key must be kept secret at all times and should never be lost.
In the case of Bitcoin, if you ever lose your private key to your Bitcoin wallet, the entire contents of your wallet will be instantly vulnerable to theft, and before you know it, all of your money (the contents of your wallet) will be gone, with no way to track down who stole it – that is the anonymity in the system that I mentioned earlier.
Hashing, Mining & PoW
The hashing function is one of the most significant functions in PKI. A hash function converts data of any size to data of a specific size. Bitcoin employs the SHA-256 hash function, which generates a 256-bit hash (output) (32 bytes).
The beauty of this hash is that it (the 256-bit value) is regarded unique for the contents of the message for all practical reasons. The hash value will change if the message is changed. Not only that, but given a hash value, reconstructing the original message is impossible.
Let’s move on to another notion in Bitcoin, mining, now that we’ve seen the relevance of hashing.
Due to the network’s widespread distribution, each miner should expect to receive several messages from multiple merchants at any given moment. The miner merges all of these signals into a single block.
After forming a block of messages, the miner uses the hashing function to generate a hash of the block. As you are aware, if a third party changes the contents of this block, the hash becomes invalid. In addition, each message is time-stamped, ensuring that no one can change the chronological order of the messages without changing the hash value of the block.
As a result, the communications in the block are impenetrably safe from tampering. This fact is further described in terms of how it is utilized to secure all network transactions.
We need to create a distributed timestamp server on a peer-to-peer network because all transactions are time stamped. This necessitates some more implementation, which I shall explain now as the Proof-of-Work. We’ll now add a new item named Nonce to each block.
A once is a number that ensures the hash of a block fulfils a set of criteria. This condition can be that the generated hash’s first four digits must all be zero.
As a result, the produced hash would be 000010101010xxx. The miner usually starts with a Nonce value of 0 and increases it until the resulting hash meets the given requirement.
It’s important to note that hash generation is random and out of your control; you can’t compel the hash function to generate a specific hash. As a result, it may take several cycles to obtain the appropriate hash with four leading zeros.
A once is a number that ensures the hash of a block fulfils a set of criteria. This condition can be that the generated hash’s first four digits must all be zero.
As a result, the produced hash would be 000010101010xxx. The miner usually starts with a Nonce value of 0 and increases it until the resulting hash meets the given requirement.
It’s important to note that hash generation is random and out of your control; you can’t compel the hash function to generate a specific hash. As a result, it may take several cycles to obtain the appropriate hash with four leading zeros.
The time it takes to generate a block in the bitcoin system is estimated to be 10 minutes. After the miner has successfully mined the block, he releases it into the system, making it the chain’s final block.
It’s worth noting that numerous miners are vying for the right to create the valid block. The first successful miner is rewarded with bitcoins by the Bitcoin system. In general, the miner with the most processing power may emerge as the early victor. This might lead to attacks on the entire system from those with a lot of processing power.
Blockchain Privacy
The anonymity of bitcoin transactions is jeopardized when the ledger that records all transactions is made fully public. Anyone, anywhere in the globe, would be able to figure out who paid who? By keeping its records confidential, the traditional banking system is able to retain this level of anonymity.
A new technique is used to achieve privacy in the Bitcoin system. It’s worth noting that we indicated the sender of a bitcoin must know who to pay. As a result, he requests the vendor’s public key in order to make the payment. This public key can be kept private.
In the sense that, as a service provider, you would simply provide your public key to someone who inquired about payment.
This public key’s link with you hasn’t been reflected anywhere in the ledger. Anyone outside of the transaction would only know how much money is being sent and to whose public key it is being paid out.
You can produce a fresh private/public key for each transaction to obtain a better level of privacy so that multiple transactions made by you cannot be grouped together by a third party. For the uninitiated, this simply means that a number of smaller transactions were carried out, none of which will ever be tied to a single source.
Finally, any system that is dependent on the internet is open to abuse.
Conclusion
Using Bitcoin as a case study, you were introduced to numerous Blockchain ideas in this short tutorial. Bitcoin is the first successful blockchain implementation. Today, blockchain technology is being used in a variety of industries where trust without the involvement of a centralized authority is desired. So, welcome to the Blockchain world.