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What is Blockchain?

What is Blockchain!!!

You would see that many of the online blogs by experts defining Blockchain as the underlying technology (decentralized public ledger/database) for many of the digital currencies like bitcoin being traded in the market.  There are many initiatives/projects which have been started by technology and industry leaders to explore the potential uses of Blockchain to transform their businesses. Some of these initiatives are Hyperledger, Etherium etc. Don’t worry about these initiatives and what they are for now. I will be covering these in the upcoming blogs. I will try and define Blockchain from my understanding keeping things simple.

To define Blockchain we need to understand what it is trying to do. If you see any of the information tracking applications these days it has client application which can be installed on a mobile or desktop and a server with the database  hosted at a datacentre or cloud where authenticity of the additions, changes made are managed at one place. The following image from Wikipedia showing a simple client server architecture:

Blockchain works the other way using distributed computing where there is no central server or database. All the data is stored at each client application side encrypted and backedup from time to time in a distributed database/ledger called Blockchain ledger. This follows same rule as a Bittorrent or any torrent client application where you don’t have any central repository of the data and its hosted by multiple users from their respective client application. The following exhibit shows how the blockchain technology works:

blockchain.svg

Blockchain is a decentralized ledger/database which helps users to store information of a transaction or information of value securely without worrying about security or tampering as each transaction/data entry is irreversible and can be tracked to first transaction like a chain. Each transaction is stored as a block and is linked to the previous transaction which can be tracked to the genesis(first transaction) forming a chain hence the name Blockchain. Each new block can be linked to only one block which contains the previous transaction and cannot be changed providing irreversibility of the transactions. The following is a representation of how transactions are stored in the decentralized ledger:

Blocks Storage.svg

The above explanation might sound bit technical and difficult to understand for someone who doesn’t understand technology. Let me take an example to show how Blockchain can work in a political scenario of elections. Using Blockchain the voting mechanism can be automated simplifying the way people exercise their vote in a secure way. In this case just imagine Blockchain as a distributed database of the information of all the voters in a country. Each voter has an account which can be accessed on a voting client application installed on a device, picking information from the Blockchain, which helps an individual to vote. Each profile on the Blockchain is encrypted(imagine as if it is locked in a high secure vault) and can only be accessed by using the secure token (like a complex password to open the vault) provided to each of the voter. In many countries exercising democracy the systems which maintain voters database are vulnerable and not fool proof.  If you google you would be see many election rigging, tampering with opposition voter database cases which make it very difficult for countries to run elections and trust the systems they use.  Blockchain helps avoid tampering or rigging of elections as only the exact voter with the right secure token can exercise his/her vote as there is no other way to access the voters data on the Blockchain. Now the question would be how does the voting happen? when ever there is a election the concerned authority can assign a vote to each of the citizen on the Blockchain which can be transferred to the candidate they want to vote for. The voter will go to the voting booth, will access his vote through a voting machine which has the voting client application. the voting client application will ask for the secure token for authentication, once the voter has access to the vote he can just transfer the vote to the candidate he prefers to vote. This overall activity happen in a secure way making sure the vote goes to the candidate voted for as there is no external influence. The Blockchain databases across the network of voting booths will get updated registering the votes to the candidates to whom the voter has transferred his/her vote. Now questions might arise like in what format the secure token will be? how will the voter authenticate his securetoken? How will the voter register his vote? As Blockchain is a decentralized ledger/database many client devices can be programmed to do different activities on top of it. The securebtoken for each voter can be incorporated into his/her social security card or citizenship card. This can be a code embedded into a chip or barcode  or even fingerprint. When the voter goes to register his/her vote he will have to provide the secure token for authentication. Now authentication will happen on a desktop or a mobile device which will accept the secure code to authenticate the voter opening the information of the voter from the distributed Blockchain database. The government employee can check for the identity by looking at the output from device showing the information of the voter like picture, gender etc. Once the voter is authenticated the control is transferred to the voting device which will open up the console with the details of candidates contesting the elections. the voter can simply choose the candidate and submit his vote. The vote gets transferred to the candidate account on the Blockchain database and the transaction is registered on the Blockchain database across the network of voting booths. As the vote has been used by the candidate he/she cannot vote again as the transaction is irreversible and the election staff will get to know that the vote is already utilized during authentication itself.

I will take another real life implementation of Blockchain technology which is Bitcoin. Bitcoin is a crypto-currency which is used across the globe. Bitcoin system is built on Blockchain technology. Bitcoin is nothing but a digital currency which is not governed by any central authority. Anyone can buy and trade using Bitcoin. Bitcoin comprises of three main parts Blockchain technology, Bitcoin protocol and bitcoin currency.

  • Blockchain technology is the decentralized ledger,
  • Protocol means the software using which the money is transferred
  • Currency is digital currency with a value

Any user who wants to purchase Bitcoin will have three important things which are:

  1. Address identity – this is like account number to which money will be transferred
  2. Secure Token – User will use this to send money as this is only means he/she can access their bitcoins for transferring to other addresses.
  3. Client software – this is a ewallet app which will help you access your bitcoin using secure token. This software also helps in updating the decentralized ledger and validate transactions.

There are many other systems which are built around bitcoin system  to perform different other activities which i am not covering here. but the above mentioned three things are the most important things to understand to start with.

A user can purchase a bitcoin at any bitcoin exchange which normally also provide a eWallet application as well. When a user buys bitcoin they get an address and encrypted secure token which is used to access their bitcoins and transact. Secure token is very important and the user cannot afford to loose it. if they loose it then their bitcoins are lost as well as there is no other way to access their bitcoins. Many additional features are being built currently to recover lost secure tokens. Now that we have basic idea about Bitcoin, lets understand at a high level how bitcoin works and how transactions are done.

Lets assume a user purchased 2 bitcoins at a exchange using their wallet application. The first thing what happens is the user gets 2 bitcoins credited to his acccount/address on the ewallet. On the Blockchain front a transaction is registered that 2 bitcoins have been added. Now as this is a new transaction blockchain will update this transaction on the Blockchain ledger across the network of users transacting bitcoin. Now this transaction is not editable. If someone tries to hack it and edit it then Blockchain will validate by checking the transaction data across the network of users and it will reject the change.

Now that the transaction is stored and wallet is updated the user is ready to transact with other users to purchase of goods or services or anything of value. Our user with 2 bitcoins has purchased a product from another user who accepts bitcoins for purchase. the price for the product lets say is 1 bitcoin. The seller will provide our user with the bitcoin address/account to which the bitcoin needs to the transferred. The address is usually shared in form of a barcode or actual account number of the ewallet. our user will access his account using his secure token and will transfer 1 bitcoin to the provided address. On the blockchain ledger front a new transaction is created which will register the 1 bitcoin transfer to the provided address and balance bitcoins linking the latest transaction with the previous transaction of bitcoin purchase. The latest transaction is updated across the distributed ledgers with the network of users providing the latest and correct information. On the seller’s front his address/account is credited with the 1 bitcoin immediately once the transaction is completed. This again is registered in Blockchain ledger as a new transaction showing the updated bitcoin numbers. Now this whole transaction didnt require any intermediary nor a thirdparty to monitor the transaction the blockchain technology automatically has authenticated this and the transaction is completed successfully and securely.

This is a very simple example which we have provided to make someone non-technical to understand how Blockchain works. There are so many use-cases Blockchain has that its implementation is going to change the way we do things improving efficiency, security and transperancy of the systems around us. Currently research being done on Blockchain where this technology will touch our lifes on ever step.

We will dig deep into different other topics to help you understand Blockchain better.

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7 Comments

  1. Vivek

    Awesome article for a first source information on Blockchain.

  2. I really wish there were more arelicts like this on the web.

  3. Shiver me timbers, them’s some great inanfmrtioo.

  4. Bitcoin has experienced incredible growth during the last year and there are now some who are claiming that the bubble is soon to end and Bitcoin crumble. Some of us continue believe in the concept of an independent away from the control of the financial establishment. We do not believe that Bitcoin is finished. We shall be sticking with Bitcoin and I am quite certain that Bitcoin will keep rising faster than before.

    • Ankit Gupta

      Bitcoin is just a tip of the iceberg. Blockchain has huge potential in various business scenarios.

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