Web3 For Dummies - Part 01 - What is a Blockchain?

TL;DR: In this series, we will talk from the very blockchain basics to building a complex?DAPP.

Background

What is FIAT? ??

• The standard currency is called FIAT.
• FIAT requires a middle man authority (a bank or a government as examples).
• A cryptocurrency in some technology (like blockchain) relies on automatic rules to comply with the exchange rules.
• The most widely used digital currencies are?cryptocurrencies.
• We call them?crypto?because it relies on?mathematical cryptographic?properties similar to password encryption.
• We cannot trust other people around without a middle man.
• We use cryptography to exchange value in the same way we use?https?to send sensitive data over the internet.

Hashes ?

• We have been using?math hashes?for a long time in computer science.
• Hash functions?take an input and produce a deterministic output.
• We use hashes on databases, algorithms, and data structures.
• A good hash function is easy to calculate on the input, but very hard (in computer time) to reverse from the output.
• Multiplying two integers is a very fast operation.
• Factoring an integer?into its prime factors is a very expensive operation (provided factors are large enough).
• We can transform any data on blockchain into numbers and encrypt them very fast.
• If we chain a block content, its hash changes unless they have the same hash.
• We called this a?hash collision?and can keep its probability near zero using math.

The Blockchain ??

What is a blockchain? ??

• Blockchain is about decentralized trust.
• You exchange value without an intermediate.
• Trust issues are not solved by a middle man like a market, broker, credit card, or bank.
• You don't trust or rely on reputation or a certified third party.
• Standard middlemen are expensive, slow, and human errors prone.
• Blockchain was first designed to exchange currency.
• Nowadays it has many other uses such as managing loans, supporting all kinds of contracts, NFTs, Tokens, etc.

Which was the first blockchain? ??

• Satoshi Nakamoto?(a collective or fake alias) released the?First Blockchain proposition.
• Bitcoin was the first blockchain implementation.
• Blockchain technology was first designed for digital currency exchange.
• Blockchain secures transactions in an not-trusted medium (the internet).

Blockchain Properties ??

• Transparency.
• Decentralize trust and carry on distributed transactions and electronic commerce.
• Remove man in the middle, merchant accounts, banks, clearing services.
• Reduce charges and improve efficiency by removing the middle man.
• Full?auditability?and transactions history.
• No single point of failure.
• We replicate the database in many places.
• Most blockchains are public, tough transactions might be encrypted.

Blockchain Implementation ??

How does it work? ??

• All new data is added, never removed, or replaced.
• Blockchains are immutable databases on transactions.
• Most traditional databases (relational, files, hierarchical, spreadsheet) can be overwritten.
• Blockchain only allows CREATE and READ, No UPDATE or DELETE.
• It is not a traditional?CRUD.

How do we store data? ??

• To update a change, we need to add a new transaction at the end.
• This is analogous to?account ledgers.
• Every Block has a group of transactions with (possible) different partners.
• Blocks are chained like a?linked list.
• Since blockchain is immutable; stored data is available forever.
• Blocks are replicated in nodes.
• Nodes are replicated all over the net.
• If we want to add new data, we need to reach a consensus.
• All nodes have the same authority and a single vote.
• We reach a?Consensus?once one of them gets (50% + 1) votes.
• A Transaction can be anything as long as we can store it with bytes.
• To transfer cryptocurrency we will add to the ledger a Transaction for an amount with source a destination addresses.

The chain ??

• Genesis Block is block 0
• Next block stores the previous block's hash as a linked list.
• The hash guarantees chain is neither broken nor faked

The Nonce ??

• To make hash computation hard we need to introduce some random data with the transaction.
• We force the hash value of the transactions + the fake data to have an arbitrary form.
• We ask the computed hash function to have some leading zeroes.
• At Bitcoin?there are currently 19 zeroes.
• The random data is called a Nonce.
• We need a nonce such as, together with the valid transactions, it yields a hash with some leading zeroes.
• It is very costly to search for this nonce.
• Bitcoin uses leading zeroes. Other blockchain implementations use similar mechanisms.

Mining ??

What is mining? ????

• Mining is the artificial process to find the proper Nonce to add to a group of transactions to achieve a hash with a fixed number of leading zeroes.
• Mining?takes a lot of computational time and energy.
• Miners use specialized hardware where energy is cheap all over the world.
• Nowadays, Mining is a threat to the environment.
• Nodes compete for the price provided it is valuable.
• The first one who solves the math puzzle gets the reward.
• After global validation, new Bitcoins (or equivalent) are rewarded to the one who solves the puzzle.
• Global validation is easy since hash encoding is cheap as opposed to hash decoding (mining).
• The reward motivates miners to legitimize and monitor Blockchain transactions, ensuring their validity.

Integrity and Trust ??

• Blocks are added after consensus.
• If 50% +1 agree to fake a chain, they can do it. This is known as the?51 % Attack
• Proof of work?is the most used mechanism and it consists of global hash validation.
• Proof of Stake?requires less computer power than Proof of work. it uses bet voting to select a winner.
• Currently, there are no efficient ways to carry on Proof of Stake in a decentralized way.
• There are several other alternatives.

Voilá.

This is basic Blockchain.

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