Many People still don't understand the Blockchain and how it works
Dec 03, 2017 Posted / 4669 Views
Having emerged in 2009 after the introduction of Bitcoin blockchain technology has met mixed reactions from people across the world. With some people viewing it as the technology that will truly change the way human civilization works while others think blockchain should be tagged illegal and strictly regulated. So what is actually Blockchain? With hundreds of definition depending on how and where it is applied I would like to take the definition of Blockchain as a public ledger that allows parties to co-create a permanent irreversible and transparent record of exchange and processing without relying on a central authority.
A Lot of the previous technologies was basically based in data and information and how they could be quickly exchanged from one party to another. However, Blockchain technology is more of the exchange of value and how to make it instant and decentralized, a more interesting status quo right. Technology aiming to improve Businesses have been in evolution since the 1960s, these technologies aimed at simplifying the process of carrying out businesses. Blockchain, on the other hand, deviated from this evolution and set it’s own stage with new protocols. Let's have a look at how the blockchain works.
There is basically four fundamental principle enabling the smooth running of a Blockchain. Below we briefly discussed each principle giving you why it’s important to make blockchain a complete system.
1. A protocol of Agreement.
This manages how transactions and recorded and agreed on between members. It is the part of the Blockchain system that enables it to operate without a central authority to prove the validity of transactions. This protocol allows parties without any prior knowledge about each other's identities or any trust of any kind and living in different parts of the world to reach agreement on the Blockchain. Its helps the Blockchain prevent doubling spending of tokens, a scenario where a token can be spent more than once because of having duplicate copies. This protocol also prevents the fraudulent transaction from being mistakenly validated on the Blockchain thus keeping the Blockchain more secured.
2.Ledger, consider this as an online accounting book with a public access.yes anybody can open the ledger and view its content but not be able to change any content on it. Once a blockchain transaction is verified, it’s added to the ledger as a Block.
3. Rewards and Incentives
Blockchain involves verification of transactions through mining, a process which involves heavy mathematical calculations using Application Specific Circuits (ASICS) or Intensed Graphic Processing Units (GPUs). Mining can be understood as the process of adding transactions performed during a given period of time are added onto the ledger.Mining is the final stage of a blockchain transaction which confirms the validity of the transaction meaning a transaction added to a mined block is irreversible unless the parties decide to do so. Miners solve sophisticated mathematical equations to be able to add the transaction onto the ledger and are rewarded a fee for their services. There is competition between miners to solve the mathematical equation that would subsequently confirm the transaction. The miner with the highest hashing power definitely will take the lead. Many mined cryptocurrency has mining limit which will be reached in the future. Bitcoin for example has a limit of only 2,1000,000 coins. Indicating that after this figure is reached mining rewards will be zero. However other economic incentives will keep the mining activity progressing.
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4. Smart contracts.
The last aspect of the blockchain system is Smart contract. A smart contract is a provision on the blockchain that allows different applications to be developed and runned on the blockchain. Definitely people has different ideas that can be turned into a business on the blockchain. The blockchain runs a code on every node on the network keeping all nodes secure at all time. This implies that the code can not be manipulated at one node without other nodes on the network noticing.
There are basically three different types of Blockchain, we will briefly describe all of them in the preceding text below.
1. Permissionless Public shared
In this type of Ledger the main aim is to operate a completely open environment totally decentralised. This type of blockchain allows anyone to submit a transaction on the blockchain and participate in validating it too. This is the type of blockchain being used on the Bitcoin and Ethereum network. As a precaution against malicious actors in the network a protocol known as proof of work is added onto the Blockchain. The major hiccups associated with this blockchain is the expensive computations required, high electricity consumption, scaling problems high volume of participants required to ensure the network operates effectively. Permissioned ledgers of the abilities of resisting corruptions by malicious users.
2. Permissioned Public Shared
This is a hybrid between the low levels of trust associated with public blockchains and the high levels of trust associated with private blockchains. Also known as the Consortium Blockchain permissioned Blockchain is the one with a restricted identities of participants. This means not everybody with an internet connection can execute a transaction on this type of blockchain.
3 Permissioned Private shared
In this Blockchain the transactions propagate faster due to small number of nodes connected. A generally lower transaction fee is paid in the blockchain due to a small number of people verifying transactions in the blockchain. This blockchain is highly centralised with all users putting their trust on a single authority.
Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .
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