What is a blockchain?
Sergey Gromov
Technology expert and enthusiast #data #dataanalysis #ai #bi #dashboard #dataengineer #web3 #blockchain #nft #metaverse #p2e
KEY MOMENTS
The public blockchain is a distributed ledger. It resembles a database and has the following key characteristics:
We know that everyone is talking about blockchains. But what are they actually?
When most people think about blockchains, they are referring to decentralized or public blockchains like Bitcoin. But we should say that this technology can also be used to create centralized blockchains. They have some advantages for corporations in comparison with public ones.
What does a word ?blockchain? actually mean?
Blockchain is a distributed ledger which is similar to a database. But instead of being controlled by a central authority for example, a company like Google, a small firm, or an individual), the ledger is distributed across multiple computers. They can be located all over the world and controlled by anyone with an internet connection. At its core, a blockchain is a ledger through which data is added and updated in real time. This happens through the consensus of the various nodes on which the network software is installed.
However, once the data is added into the ledger, it cannot be deleted or edited, as it happens in a database. This is the result of the overall design of blockchains.
Why a chain?
At the high level, a block consists of a list of data. A “chain” is a set of blocks of data that is constantly growing over a period of time. If the transaction is embedded deep into the blockchain (i.e., at an earlier stage in the history of the chain), then it will be extremely difficult to change this data. This makes the blockchain a unique way to store valuable data.
Imagine a digital tower of blocks, on top of which a new block of data is added every 10 minutes from the original "genesis block" at the base of the tower. This is exactly what happens in the Bitcoin network. The data in each block consists of financial transactions broadcast by network users along with cryptographic proofs that these transactions are valid.
Why a blockchain was created?
One of the main components of blockchains that has allowed them to materialize is the use of consensus. But to understand the consensus process, we need to have a look at brief history of why the anonymous creator of Bitcoin, Satoshi Nakamoto, created the blockchain. It will also help us to have a broader view on the problem the blockchains are solving.
In the traditional financial world, banks and clearing houses act as the ultimate arbiters of account-based financial hegemony. If Alice sends $100 to Nikita, then $100 will be debited from Alice's bank account and credited to Nikita's account. However, the actual execution of the transaction (when the bank recognizes the transaction as valid) may take several days.
Clearing is carried out by clearing houses and a number of other financial institutions. They will verify the authenticity of the transaction and whether Alice has the necessary funds to send to Nikita. However, clearing houses are centralized organizations. They are subject to external influence from governments or other organizations.
In the emerging world of cypherpunks and digital currencies in the 2000s, the main idea was to bypass the central clearing houses with an all-digital currency. This is known as the "double spending problem". There was no way to check that if Alice sent Nikita $100, then she would not be able to spend the same $100 again. If Alice gives Nikita $100 in cash, she won't be able to spend it again. However, in the digital world, in the absence of a central clearing house, this process becomes more complicated. And then a blockchain appeared.
Peer-to-peer networks
Bitcoin Blockchain is a peer-to-peer (P2P) network which means the absence of centralized structure. All the network participants are equal and act as state controllers of the distributed ledger. In traditional finance, the states of the ledgers are determined by central clearing houses. However, Satoshi Nakamoto realized that accurately determining the state of a blockchain ledger in a P2P network required an innovative method that did not sacrifice the decentralized nature of the network. It is known as consensus.
In the Bitcoin network, a new block is created and added to the chain every 10 minutes. These blocks are validated and added to the blockchain by distributed nodes on the network – without any clearing house. They perform this function through the Nakamoto Consensus. This concept is also known as "Proof-of-Work" or the Byzantine Generals Problem in distributed computing.
Through a series of smart incentive mechanisms, cryptography and distributed consensus, the blockchain can reach a secure and accurate consensus on the state of the ledger. It is like a central clearing house, but in a decentralized network where no one controls the situation.
Cryptography in blockchains makes data verification (i.e. transactions) easy and virtually unforgeable. This task is carried out by network operators. They power the nodes and automatically validate blocks and transactions on the network using a set of consensus rules. This can be done by anyone with a computer on a public inclusive blockchain such as the Bitcoin blockchain.
Apps in Blockchain
Since the days of Bitcoin, the concept of blockchains has gone even further. Instead of using blockchain for financial data only, projects are seeking to use it as a means of storing and verifying any kind of data. This includes everything - from social media apps up to game data.?
In general, blockchains are a new protocol architecture. It eliminates the need to trust individuals in an inclusive network and promotes social scalability. In addition, the blockchain is a way of transferring value that is not subject to control or corruption by malicious users.
In a blockchain network, storage and data are redundant. This means that as long as people manage the nodes (i.e. the software client), there is no central point of failure. As a result, they have attracted a lot of attention and hype due to their various uses. Some of them are promising and many are far-fetched.
In addition to the created hype, blockchains have already made a significant contribution to the history of the development of technology and money circulation. We are talking about the Bitcoin creation.