Blockchain (Part 01): What is it and why do we need to know all about it?

"In May 2018, an unknown actor launched a 51 percent hashing attack on Bitcoin Gold. This form of attack allows anyone to alter the blockchain ledger, which records transactions, and spend the same digital currencies several times."

To fully comprehend cryptocurrencies, we must first comprehend the technology that underpins them: Blockchain technology.

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BLOCKCHAIN:

A blockchain is a technique for recording transactions that prevents the data from being updated or hacked by third parties. It is an immutable ledger that allows a business network to record transactions and track both tangible and intangible assets.

Blockchain is beneficial to a wide range of organisations since it provides them with information quickly and transparently, which is crucial. This data is shared over the blockchain network and can only be accessed by network users who have been granted permission.

A blockchain is a distributed ledger with immutable transactions that is accessible to all members of the blockchain network which eliminates the duplication of data. No one can tamper with or change the recorded data or transactions since they are immutable. If an error is detected in a prior transaction, a new transaction must be created to fix the error.

WHY IS BLOCKCHAIN CONSIDERED TO BE SECURED?

In the blockchain network, there are three layers of security. The first layer is of ‘relevant information’, such as transactional information for bitcoin, such as from whom and to whom the bitcoin is exchanged. Hash is the second item that is saved. Each block that stores data generates a hash code, which is a unique code.

In addition, a block contains one more item: the hash of the previous block. The hash generated by the previous block is saved in the next block, and the hash generated by the other block is saved in the block after that. This creates a chain of blocks, making it nearly impossible for a hacker to tamper with the blockchain's transactions or information. The first block in which no previous hash is recorded is known as the genesis block.

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When someone attempts to modify any information in a block, the hash in that block changes. The following block, which is connected to the previous block, will display an incorrect hash, which can easily be identified. The other blocks in the chain will similarly show an incorrect hash or irrelevant data. As a result, in order to update any specific information, a person must change all of the data contained in the blockchain, which will take years to complete.

HOW TRANSACTIONS ARE RECORDED IN A BLOCKCHAIN:

A transaction is first requested and then authenticated. Cryptographic keys are used since blockchain is a decentralised network with no central authority to administer and monitor all transactions. These keys are used to encrypt wallets or places where the transaction is stored. Furthermore, after the users have agreed on a transaction, it must be approved or authorised before it can be added to the subsequent blocks in the chain.

If the blockchain is public, the permission decision is reached by consensus. The transaction must be accepted as valid by a majority of users or "nodes." Those users or “nodes” are rewarded in the form of cryptocurrencies. "Proof of work" is another term for this.

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Proof of work is when the people who own computers in the network are required to solve a complicated math problem in order to approve the addition of a new block. Mining refers to the process of solving the complicated problem, and miners are paid in cryptocurrencies for their work.

Later on, a different type of authorisation was adopted. This is due to the fact that a bitcoin mining network requires around 70 terawatt-hours (TWH) of electricity.

In practice, only a few miners are willing to participate in mining and split the fees or incentives offered by the blockchain network. However, mining has a good side: as the blockchain grows, more computers join and attempt to mine (solve the authorization problem), the problem becomes increasingly difficult to solve, and the network expands at the same time. It is nearly impossible for anyone to tamper with or hack the data stored in the block using this method.

Another sort of authorization employed was "proof of stake," as previously mentioned. This means that in order to be confirmed and authenticated, individuals must have a stake in the blockchain, such as owning cryptocurrency. There is no need for mining with this method.

"Smart Contracts" are another form of security in which any transaction will be carried out automatically if certain conditions are met.

TYPES OF BLOCKCHAINS:

Public blockchain:

Anyone can participate and access the information in such a blockchain. The major issue is that considerable computing is required for security reasons, and the information or transactions have very little privacy.

Private blockchain:

Private blockchains have a more centralized network than public blockchains.

There is a governing body that oversees the network and controls participation, as well as regulates the consensus process and maintains a shared ledger. Because private blockchain is run behind a protected network, it increases user trust and confidence.

Permissioned blockchain:

Blockchains can be permissioned or permission less, or both at the same time. Permission less blockchains enable any pseudo-anonymous user to enter and conduct transactions. However, in the case of permissioned blockchains, user access is restricted if the stated protocols are not followed. The identity of the users is revealed to all other users, which fosters trust.

Consortium blockchains:

Consortium blockchains are another type of permissioned blockchain. Rather than being governed by a single entity, these blockchains are governed by a group of organizations. These blockchains necessitate trust and cooperation among those organizations.

Hybrid blockchains:

It is a mix of public and private blockchains. Organizations establish a private permissioned blockchain in addition to a public permission less blockchain. Organizations control user access to specific data as well as the type of data that would be made publicly available.

Transactions in hybrid blockchains are not made public but are verified using smart contracts.

                                            

                                     Stay tuned for the second part!