Blockchain Fundamentals
Blockchain technology has the potential to impact and change outdated paradigms in international commerce and trade, contract negotiations, foreign relations and global finance. Blockchain tech- nology reduces or in some cases eliminates the need for third-parties in transactions of all types. Blockchain networks are self-governing and self regulating.
In this course we will explore blockchain fundamentals.
What is Blockchain?
At its essence, a blockchain is a tamper-proof data structure that tracks something of value as it passes from owner to owner.
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking the transfer of ownership on anything of value. Assets can be tangible or intangible. Virtu- ally anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
Business runs on information. The faster it’s received and the more accurate it is, the better. Block- chain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by users validat- ed network members.
A blockchain network can track orders, payments, accounts, production and much more. And because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, as well as new efficiencies and opportunities.
Key elements of a blockchain network.
Blockchain is a list of records called blocks that store data publicly and in chronological order. The information is encrypted to ensure that the privacy of the user is not compromised and data cannot be altered. The information is stored and managed in a decentralized manner hence no central authority is the sole decision maker. Instead, most decisions are based on a consensus of all the participating nodes of the network spread all over the world.
Features.
Now that we have some basic understanding of blockchain technology let us review its primary features:
Network Capacity
Blockchain software is designed to store small blocks of data in a decentralized ledger or database. Blockchain software runs on a peer-to-peer network of computers called nodes. This allows for automatic rapid scaling making capacity of the network infinite.
Blockchain Software is a Peer-to-Peer Network
Thousands of Blockchain Nodes Operating on Individual Computers.
Primary Functions of Blockchain Node Software
- Data Storage: Each node stores and publishes an immutable permanent record of all transactions
- Data Analysis: Each node analyzes data for accuracy.
- Confirmations: Each node confirms transactions and data transfers in a process called data mining or mining.
- Computations: Each node performs computational functions to decrypt data using specific algorithms.
Security
Blockchain technology is more secure than traditional computer networks. The distributed peer-to-peer nature of the network ensure no single point of failure exists. All data that is pub- lished on a blockchain is encrypted using the most advanced machine-based cryptography and an immutable copy of the entire data structure is stored across multiple nodes. If one node in the network is faulty or is hacked the integrity of the original data will not be compromised.
Immutable
Transactions and data that is stored on the blockchain is permanent, transparent and immutable. In other words, once a transaction has been confirmed, the record of it can never be changed or reversed. Any database that is centrally controlled is vulnerable to intrusion, theft, counterfeiting, fraud or deletion. It requires trust in a third party intermediary to keep the data secure.
Blockchain data maintains its records in a continuous, ever evolving structure that can never be altered by anyone. To add data to the database every node in the network must check for accuracy and that the data is complete. This method of confirmation is called consensus. If the majority of the nodes confirm the validity of a transaction, then the action is permanently added to the data- base. Consensus helps to ensure all data added to the network is legitimate making the data com- pletely transparent while ensuring the data cannot be corrupted.
Blockchain data cannot be modified in any way by any one individual. Users of the network do not have to trust a third party.
Decentralized
Blockchain networks are decentralized by design. They are made-up of thousands of nodes operat- ed by anonymous individuals. Node software is designed to operate in the background on any personal computing device. This allows the network to scale quickly. Individual node owners pur- chase and download node software designed to support the functions of a variety of blockchain networks. The software allows the network to access storage, perform computations and commu- nicate with other nodes through a standard broadband Internet connection. All of these functions are performed in the background, meaning it will function even while the user is working on their computer.
Decentralized nodes provide assurance that the data structure can never be altered.
Today, centralized network servers provide the infrastructure to support the activities and actions taken by users on the Internet. This leaves users vulnerable to malicious acts by nefarious individu- als. User activities on the Internet can be and most often are monitored and censured by individuals and organizations that control their data.
Decentralized control means users of the network do not have to rely on a “trusted” third-party to mediate, monitor, regulate or censure the actions they perform on the network.
Benefits of a Decentralized Network
Data Integrity:
Actions taken on the blockchain are automated using specific algorithms called Blockchain Proto-col. For example, the Bitcoin blockchain utilizes a protocol called “Proof-of-Work”.
The Ethereum blockchain utilizes “Proof-of-Stake”. Other blockchains uses a novel protocol called “Proof-of-Action”. The protocols dictate predetermined functions performed on the network. These functions are automated and cannot be altered. The fundamental nature of blockchain technology ensures every user is treated in exactly the same way and ensures the integrity of the data stored in the blockchain.
User Control:
Blockchain users remain in control of their data and digital assets. Users do not rely on a trusted third party. Each users is issued a private key that is used to perform functions such as sending or receiving data. Private keys are secure and cannot be hacked due to the extremely complex nature of their encryption. Private keys ensure users remain in complete control of their data and assets stored on the blockchain.
Single Point of Failure:
Blockchain networks are decentralized meaning there are always hundreds if not thousands of active nodes ready to perform required functions eliminating a possible single point of failure.
Trust-less:
Blockchain networks are automated and functions are predetermined. Transactions are completed by a predefined method and do not require a third-party to validate the request.
Transparency:
Changes in blockchain data are saved in a permanent, time-stamped immutable record that is fully transparent and can never be changed or altered in anyway.
Consensus:
Consensus is an automated data analysis process performed by active nodes on the blockchain. Each transaction of data performed by the blockchain must achieve consensus among the nodes before data can be added to a blockchain.
Irreversible:
Hashing is a complex mechanism, and it’s impossible to alter or reverse. Which means that no one can use the public key to reverse-engineer the private key. Also, a single change in the input could lead to a completely different key output, so minute changes will also be detected.
Blockchain networks are incredibly resilient and secure. In order to corrupt the network more than 51% of the replicated databases would have to be altered at the same time. A decentralized block- chain network operates across thousands of independent nodes making it virtually impossible to hack.
The Future of Blockchain
Blockchain technology is evolving at a rapid pace. Developers around the world are working with blockchain technology to make improvements in virtually every sector.
