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Blockchain Technology Tutorial

What is Blockchain?

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BLOCKCHAIN can be defined as a chain of blocks that contains information. The technique is intended to timestamp digital documents so that it’s not possible to backdate them or temper them. The purpose of blockchain is to solve the double records problem without the need of a central server.

The blockchain is used for the secure transfer of items like money, property, contracts, etc. without requiring a third-party intermediary like bank or government. Once a data is recorded inside a blockchain, it is very difficult to change it.

The blockchain is a software protocol (like SMTP is for email). However, Blockchains could not be run without the Internet. It is also called meta-technology as it affects other technologies. It is comprised of several pieces: a database, software application, some connected computers, etc.

Sometimes the term used for Bitcoin Blockchain or The Ethereum Blockchain and sometimes it’s other virtual currencies or digital tokens. However, most of them are talking about the distributed ledgers.

Is Blockchain Bitcoin?

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  • Blockchain is not Bitcoin, but it is the technology behind Bitcoin
  • Bitcoin is the digital token and blockchain is the ledger to keep track of who owns the digital tokens
  • You can’t have Bitcoin without blockchain, but you can have blockchain without Bitcoin.

Understanding Blockchain Architecture

Let’s study the Blockchain architecture by understanding its various components:

What is a Block?

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A Blockchain is a chain of blocks which contain information. The data which is stored inside a block depends on the type of blockchain.

For Example, A Bitcoin Block contains information about the Sender, Receiver, number of bitcoins to be transferred.

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The first block in the chain is called the Genesis block. Each new block in the chain is linked to the previous block.

Understanding SHA256 – Hash

A block also has a hash. A hash can be understood as a fingerprint which is unique to each block. It identifies a block and all of its contents, and it’s always unique, just like a fingerprint. So once a block is created, any change inside the block will cause the hash to change.

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Therefore, the hash is very useful when you want to detect changes to intersections. If the fingerprint of a block changes, it does not remain the same block.

Each Block has

  1. Data
  2. Hash
  3. Hash of the previous block

Consider the following example, where we have a chain of 3 blocks. The 1st block has no predecessor. Hence, it does not contain has the previous block. Block 2 contains a hash of block 1. While block 3 contains Hash of block 2.

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Hence, all blocks are containing hashes of previous blocks. This is the technique that makes a blockchain so secure. Let’s see how it works –

Assume an attacker is able to change the data present in the Block 2. Correspondingly, the Hash of the Block also changes. But, Block 3 still contains the old Hash of the Block 2. This makes Block 3, and all succeeding blocks invalid as they do not have correct hash the previous block.

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Therefore, changing a single block can quickly make all following blocks invalid.

Proof of Work

Hashes are an excellent mechanism to prevent tempering but computers these days are high-speed and can calculate hundreds of thousands of hashes per second. In a matter of few minutes, an attacker can tamper with a block, and then recalculate all the hashes of other blocks to make the blockchain valid again.

To avoid the issue, blockchains use the concept of Proof-of-Work. It is a mechanism which slows down the creation of the new blocks.

A proof-of-work is a computational problem that takes certain effort to solve. But the time required to verify the results of the computational problem is very less compared to the effort it takes to solve the computational problem itself.

In case of Bitcoin, it takes almost 10 minutes to calculate the required proof-of-work to add a new block to the chain. Considering our example, if a hacker would to change data in Block 2, he would need to perform proof of work (which would take 10 minutes) and only then make changes in Block 3 and all the succeeding blocks.

Learnersc BlockchainT4This kind of mechanism makes it quite tough to tamper with the blocks so even if you tamper with even a single block, you will need to recalculate the proof-of-work for all the following blocks. Thus, hashing and proof-of-work mechanism make a blockchain secure.

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Distributed P2P Network

However, there is one more method which is used by blockchains to secure themselves, and that’s by being distributed. Instead of using a central entity to manage the chain, Blockchains use a distributed peer-peer network, and everyone is allowed to join. When someone enters this network, he will get the full copy of the blockchain. Each computer is called a node.

learnersc BlockchainT5Let’s see what happens when any user creates a new block. This new block is sent to all the users on the network. Each node needs to verify the block to make sure that it hasn’t been altered. After complete checking, each node adds this block to their blockchain.

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All these nodes in this network create a consensus. They agree about what blocks are valid and which are not. Nodes in the network will reject blocks that are tampered with.

So, to successfully tamper with a blockchain

  • You will need to tamper with all blocks on the chain
  • Redo the proof-of-work for each block
  • Take control of greater than 50% of the peer-to-peer network.

After doing all these, your tampered block become accepted by everyone else. This is next to impossible task. Hence, Blockchains are so secure.

How Blockchain Transaction Works?

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Step 1) Some person requests a transaction. The transaction could be involved cryptocurrency, contracts, records or other information.

Step 2) The requested transaction is broadcasted to a P2P network with the help of nodes.

Step 3) The network of nodes validates the transaction and the user’s status with the help of known algorithms.

Step 4) Once the transaction is complete the new block is then added to the existing blockchain. In such a way that is permanent and unalterable.

Why do we need Blockchain?

Here, are some reasons why Blockchain technology has become so popular.

Resilience: Blockchains is often replicated architecture. The chain is still operated by most nodes in the event of a massive attack against the system.

Time reduction: In the financial industry, blockchain can play a vital role by allowing the quicker settlement of trades as it does not need a lengthy process of verification, settlement, and clearance because a single version of agreed-upon data of the share ledger is available between all stack holders.

Reliability: Blockchain certifies and verifies the identities of the interested parties. This removes double records, reducing rates and accelerates transactions.

Unchangeable transactions: By registering transactions in chronological order, Blockchain certifies the unalterability, of all operations which means when any new block has been added to the chain of ledgers, it cannot be removed or modified.

Fraud prevention: The concepts of shared information and consensus prevent possible losses due to fraud or embezzlement. In logistics-based industries, blockchain as a monitoring mechanism act to reduce costs.

Security: Attacking a traditional database is the bringing down of a specific target. With the help of Distributed Ledger Technology, each party holds a copy of the original chain, so the system remains operative, even the large number of other nodes fall.

Transparency: Changes to public blockchains are publicly viewable to everyone. This offers greater transparency, and all transactions are immutable.

Collaboration – Allows parties to transact directly with each other without the need for mediating third parties.

Decentralized: There are standards rules on how every node exchanges the blockchain information. This method ensures that all transactions are validated, and all valid transactions are added one by one.

Blockchain versions

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Blockchain 1.0: Currency

The implementation of DLT (distributed ledger technology) led to its first and obvious application: cryptocurrencies. This allows financial transactions based on blockchain technology. It is used in currency and payments. Bitcoin is the most prominent example in this segment.

Blockchain 2.0: Smart Contracts

The new key concepts are Smart Contracts, small computer programs that “live” in the blockchain. They are free computer programs that execute automatically, and check conditions defined earlier like facilitation, verification or enforcement. It is used as a replacement for traditional contracts.

Blockchain 3.0: DApps:

DApps is an abbreviation of decentralized application. It has their backend code running on a decentralized peer-to-peer network. A DApp can have frontend code and user interfaces written in any language that can make a call to its backend, like a traditional Apps.

Bitcoin cryptocurrency: Most Popular Application of Blockchain

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What is Cryptocurrency?

A cryptocurrency is one medium of exchange like traditional currencies such as USD, but it is designed to exchange the digital information through a process made possible by certain principles of cryptography. A cryptocurrency is a digital currency and is classified as a subset of alternative currencies and virtual currencies.

Cryptocurrency is a bearer instrument based on digital cryptography. In this kind of cryptocurrency, the holder has of the currency has ownership. No other record kept as to the identity of the owner. In the year 1998, Wei Dai published “B-Money,” an anonymous, distributed electronica cash system.

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Limitations of Blockchain technology

Higher costs: Nodes seek higher rewards for completing Transactions in a business which work on the principle of Supply and Demand

Slower transactions: Nodes prioritize transactions with higher rewards, backlogs of transactions build up

Smaller ledger: It not possible to a full copy of the Blockchain, potentially which can affect immutability, consensus, etc.

Transaction costs, network speed: The transactions cost of Bitcoin is quite high after being touted as ‘nearly free’ for the first few years.

Risk of error: There is always a risk of error, as long as the human factor is involved. In case a blockchain serves as a database, all the incoming data has to be of high quality. However, human involvement can quickly resolve the error.

Wasteful: Every node that runs the blockchain has to maintain consensus across the blockchain. This offers very low downtime and makes data stored on the blockchain forever unchangeable. However, all this is wasteful, because each node repeats a task to reach consensus.

Summary

  • A Blockchain is a chain of blocks that contain information
  • The blockchain is not Bitcoin, but it is the technology behind Bitcoin
  • Every block contains hash.
  • Each block has a hash of the previous block
  • Blockchain require Proof of Work before a new block is added
  • The blockchain database is distributed amongst multiple peers and is not centralized.
  • Block chain technology is Resilience, Decentralize, Time reducing, reliable and its offers unalterable transitions
  • Three versions of Blockchain are Blockchain 1.0: Currency, Blockchain 2.0: Smart Contracts and Blockchain 3.0: DApps
  • The blockchain is Available in three different variants 1) Public 2) Private 3) Consortium
  • Higher cost, slower transactions, small ledger, the risk of error are some disadvantage of using this technology
  • Dubai- The Smart City, Incent Customer retention, and Blockchain for Humanitarian Aid are the real-life use cases of Blockchain
  • Bitcoin uses blockchain technology which is not governed by any central authority or banks

Blockchain and Ethereum Certification Training

Edureka’s Blockchain and Ethereum Certification Training provides you with an in-depth knowledge of the technology underlying various platforms such as Bitcoin, Ethereum, Hyperledger and MultiChain. As a beginner, you will be learning the importance of consensus in transactions, how transactions are stored on Blockchain, history of Bitcoin and how to use Bitcoin.

You will be then taught about the Ethereum platform and how to develop custom smart contracts using Solidity and Remix IDE and deploy them on the test Blockchain network using Truffle, TestRPC and Web3.js. You will learn how to setup a private Blockchain using Multichain platform and cover the practical use cases of Blockchain in various industries.

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