Blockchain Explained…
Hi everyone, my name is Shubham Dusane and I’m a DeFi — Blockchain Developer.
Today let’s talk about Blockchain.
I’m excited to talk about this because I feel like there’s a lot of misconceptions out there about the technology and in addition, there’s a lot of concepts that can be difficult to grasp.
In this article, I want to dive into the fundamentals of Blockchain.
Definition :
Blockchain is a distributed and immutable ledger allowing anyone to track almost anything tangible or intangible goods. Most of us are probably familiar with cryptocurrencies, or Blockchain as used to track transactions.
Blockchain Analogy :
Let’s say I am with a group of friends and I lend my friend ABC for ten dollars. Now the friends see the transaction go down and they know that I have the correct amount of money and in addition, they’ve essentially endorsed the transaction and they made a record of it.
Now next week when ABC comes back to me to ask how much money had initially lent her, we could easily go to any one of my friends that have a record of that transaction.
Now Blockchains are distributed as all of the nodes that are running in that Blockchain the network has a record of every transaction that has ever taken place.
Now that kind of lends itself to the distributed nature of Blockchain.
So, all the ledger technology that has been around for some time, even simple ledgers, Blockchain takes advantage of it by having a single source of truth and has a distributed nature where everyone has the same copy from that Blockchain.
Blockchains are Immutable :
So, in a block, we have three major pieces. First, we’re going to have the transactions. So, this is going to be all the transactions that occurred when that block was created. In addition, there’s going to be a hash.
A hash is essentially a digital fingerprint,
so it represents the transactions that are in the block and is completely unique. If any of the transactions were to be changed the hash would also change.
So, let’s take a couple of letters for the hash, generally, it’s an alphanumeric sequence and is usually a lot longer, more secure.
It’s also going to have the hash of the previous block in the chain.
So, let’s say where you know right in the middle of the Blockchain here and we’ll pick something for the previous hash, maybe “2a”, and so now let’s move on to the next block.
The next block is going to have its own set of transactions, as well as the previous hash which corresponds to this one right here, as well as its own hash. And so on.
So, you can imagine that if you were to want to tamper with any of the transactions that occurred or change it, for example, to change one of the transactions, this one hash would change and because of that, the previous hash of the next block in the chain would now be incorrect.
So, to fix that you would have to tamper with every single block in the chain and that would immediately become apparent.
So, in this sense, Blockchains are immutable and very tamper-resistant.
Permissioned vs Permissionless Blockchains :
Permissionless Blockchain.
Now, when most of us think of Blockchains, we’re probably thinking of cryptocurrencies, which are public and permissionless.
Now that means anyone can see all the transactions that has ever taken place.
Now attendees are not exactly revealed, it’s only the addresses that people have, but regardless all the transactions are public and in addition, anyone can register themselves to be one of the nodes in the network essentially having a copy of the blockchain and anytime it gets updated and new transactions are made them would get a new block.
So, you have to imagine it’s quite a problem for all of these nodes to have a copy of that Blockchain. When new transactions come in, how do they reach a consensus on which transactions will make up the next block?
That’s done so using a consensus algorithm.
Let’s break down how this works for a permissionless public Blockchain.
So, a client will first submit a transaction. That transaction will join a list of other transactions that have been made on the network, and then the next thing that will happen is the node is going to start picking up those transactions and validate by looking through all of the transactions that happen in the Blockchain so far that those are also valid.
It’ll kind of mirror a block and then start something called proof of work algorithm.
Now, this is the consensus algorithm that public permissionless Blockchains use and essentially this is how they’re able to reach a consensus on which block should be next.
Essentially, it’s going to be a very complex algorithm, a cryptographic hash puzzle that all the nodes are working together to solve. As soon as one of the nodes solves it they have essentially unlocked the position of the next block and what they’ll do is broadcast that position of the next block to all of the other nodes in the network as well as adding it into their own Blockchain.
So, proof of work algorithm is quite consuming on the processing and electricity on a global scale.
So, although it’s kind of required for supporting public permissionless Blockchains where anyone can be a node and anyone can submit transactions or submit their hardware to enable the adding of new blocks.
when you’re working with Blockchain for business. This would be something like a permissioned Blockchain.
So, in a permissioned blockchain this would be something like hyperledger fabric, Corda, Quorum etc.
You have the idea of pluggable consensus algorithms, now you don’t want to do something like a proof of work because solving those complex algorithms just to find the next block is not necessary when the nodes within a blockchain network are trusted.
So, that’s one of the first concepts here, so pluggable consensus.
Now the nodes in a permissioned Blockchain are trusted, so they generally know each other. In addition, they don’t always just represent users but entire organizations. So, in this case, it’s actually very important that our privacy is one of the main tenants of a permissioned Blockchain.
Let’s take an example, let’s say that there’s a retailer that purchases an item at a thousand dollars. So, we’ll say it’s a buy order for an item at one thousand dollars.
Now the manufacturer receives the order from the retailer and says, “OK, let’s approve it.
Let’s make sure we have enough in the warehouse and let’s work with the shipping company”.
So, they go to the shipping company and they say, “OK, let’s ship this item”, and it’s going to cost them a hundred dollars to actually make that shipment.
Now, there are some privacy concerns here.
The manufacturer has to have all the information, that’s fine they need to know about the buy the order that was placed as well as the shipment the order that they’ve placed, but the retailer, although they need to know information about the buy order as well as the amount, as well as the price of it, they don’t necessarily need to know how much it costs to ship it but they might want to know when it was shipped and how much it was for.
On the same hand for the shipper, they need to know that they’ve placed the shipment order, the amount, and the cost of it, they need to know maybe when the order was placed, but they still don’t necessarily need to know how much the retailer spent.
Now, the same goes for more retailers that the manufacturer might be working with.
Now if the manufacturer is offering a different price for the product for one retailer then the other one, it doesn’t make sense for the retailers to know about the competing prices.
So, in this case, although all of the organizations are part of the Blockchain, only the retailers are part of the transactions that took place should be able to see that information.
So, in this case in Blockchain for business, it is actually pretty important that privacy is part of the Blockchain being able to control who can see particular transactional information.
Facts of permissioned Blockchains :
You can really make transactions more efficient. I think one of the most successful applications of Blockchain technology is something called smart contracts.
Smart Contracts is a set of codes that are running on the Blockchain and whenever certain conditions are met, they are automatically executed.
So, in this particular example, whenever the retailer made that purchase order to the manufacturer for this amount of goods, there’s probably a manufacturing agent that double-checks that the order has all the necessary information in it, they then probably go to the shipping agency to make sure they can cover the shipment and if the warehouse has the correct amount of goods. They’ll then make a shipment order.
Now imagine if we could automate that whole process.
That’s what you can do with smart contracts, essentially code that will make sure that all the necessary information is met, the warehouse has the correct amount of goods, and then it’ll automatically create the shipment record. If anyone of those conditions is not met it could automatically release a refund to the buyer.
This greatly speeds up the process of the contract for everyone involved, the retailer, the shipper, as well as the manufacturer.
Thanks for joining me for this quick overview of Blockchain technology.
We really only scratched the surface, so if you want to see more articles like this be sure to connect me.
If you like the article, drop a Like, and if you have any questions be sure to drop a Comment below.
I am open for Collaboration, If you have any project in mind,
Let’s Discuss…
Thank you.
Shubham Dusane
DeFi — Blockchain Developer
sdusane4@gmail.com
Medium : Shubham Dusane
