Swami Venkat

Modern technology has allowed people to communicate efficiently and directly, without the need of any third-party operators. Voice and video calls, emails, and pictures travel instantly from the sender to the receiver over the internet, creating the digital age as we know today. Note, this is all done while maintaining the trust between people no matter how far apart they are. However, when it comes to money, people still have to trust a third-party to be able to complete transactions, physically or digitally. And thus, over the past decade, blockchain technology has been slowly conquering this untapped region as a secure and alternative digital platform to transact money safely. This is achieved by using math and cryptography, hoping to provide an open and decentralized unit of any transaction value, ranging from money, goods, to even votes.

Simply put, blockchain is an up and coming data structure that helps with creation, storage, and sharing digital transactions among a wide and distributed network. This ultimately allows the users to create a record whose originality and authenticity can be publicly accessed and verified by the entire community. This is what makes blockchain technology “trustless” technology, meaning that the “value” over a wide ranged computer network can be verified, overseen, and enforced without the need of any third-party or centralized government. An example of such trusted organisations, VeriSign, may no longer be necessary to compute these transactions.

Blockchain can also be thought of as the contract that executes itself, in this modern era. It will become a global known source of trust, where ownership won’t belong to any certain company or person, yet the community will help run it together. This ultimately results in only having one computer or “node” in the network to be safe, that is, to transact limitlessly.

Principle of Blockchain

As described above, blockchain technology was developed as the main verification technology to oversee transactions without the need of any third-party resources. The best example of this technology being used, is in the form of a cryptocurrency called Bitcoin, the first decentralized crypto digital currency. In the case of Bitcoin, the transactions are initiated when the receiver/buyer of the digital coins sends his or her public key to the owner. The coins are sent via a hashing function, and the keys are cryptographically changed to generate the buyers address into the blockchain, maintaining and updating the record. Every coin is specific to one address, and the transaction in the crypto-currency is the simple trade of one public address to the next. Next, in each blockchain, the date used in the millions of exchanges, are all digitally stored to the public record, via a giant spreadsheet, secured by members, and circulated among the users in this peer to peer network.

A blockchain transaction occurs when one of the two parties signals a message to the network about the various conditions that the two holders agreed upon, beforehand. Next, the other party broadcasts the acceptance of these rules to the network, ultimately triggering the request for other network participants to authenticate and verify the deal. As a result, the network members play the role as a verifier and validate the transaction between the two, guarding the double spending through a correction system called “proof-of-work.” This system represents the competition among other network members to validate the requested sharing of the desired blockchain. Once the transaction has been validated, the public records will be updated with the resulting stance of the added transaction.

To summarize:

Decentralized – The most important point of the blockchain, where the digital participants are linked together in the market place, where they can buy and sell various products and goods in a transparent medium, without the help of third-party sources.
Trust – Blockchain provides a useful mechanism to verify and see the blocks of data transactions at any specific time and date. Moreover, since each block contains the information of the previous block, we can trace the history of each block all the way to the ownership.
Preserving – When a transaction is verified, it is almost impossible to change the transaction’s final data.

How Blockchain Works

1. Definition of the Transaction: In the very first step, the sender creates a transaction that carries the information about the receiver’s public information (address, name, etc.), the value of the transaction, and a digital signature that verifies the sender’s validity cryptographically.

2. Authentication of the Transaction: When the computers in the network receive the transaction, they, first and foremost, validate the message by decrypting the cryptic signature (as mentioned in step 1) and the message will be temporarily held, until the creation of the block.

3. Block Creation: Once one of the parties in the transaction uses the agreement to update the record of his or her block, then, at a specific time interval, the update block is broadcasted to the world, while waiting for validation.

4. Validation of the Block: When the users responsible for the verification and authentication of the block are requested, they go through an iterative process which requires authentication from both the sender and other nodes within the peer to peer network.

5. Chaining the Block: Once all the transactions within the block are approved, then a new “chained” block is added to the current blockchain, resulting in the new state of the block, which is sent back to the network, and updated.

The whole process can take anywhere from 3 – 10 seconds to complete, making it very fast and efficient for setting future financial transactions.

Limitations of Blockchain

Acquiring blockchain as a method for conducting numerous transactions over the Internet, requires a major task for the network of the participating organisations, coupled with a well-structured finance process. All of this is accompanied by many challenges, first being the organisation coming up with a governance and agreement over the tedious process, looking at the various protocols and policies to adapt blockchain technology. Additionally, security and privacy issues are big factors in the organisation’s need to use blockchain, alongside with the high security needed over the wide network, to keep the system safe. In order to overcome the challenges mentioned above, one should focus on the implementation of a standardized data flow and supportive language used to communicate within the blockchain technology, and not more so, the challenges as mentioned above.

What are your thoughts on blockchain technology? Have an experience to share? Let us know in the comments section below!