Blockchain Technology | by Aman, Anustha and Garima

By 'block', we refer to digital information stored in a public database (the ‘chain’). The technology at the heart of bitcoin and other virtual currencies- blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.

“Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

How Blockchain Works?

Some fundamental principles vis-a-vis blockchain technology are:

1. Distributed Database

This network doesn't have a central authority — it is the very definition of a democratized system. Each party in this network has access to the entire database, that is, its complete history and every new update to it,sort of like a Facebook News feed with live updates whenever a new status is posted, & can verify the records of its transaction partners directly, without an intermediary. Since it is a shared and immutable ledger, anything that is built on its robust network, is by its very nature transparent.

2. Peer-to-Peer Transmission

There's no central node to mediate, i.e., all communication takes place directly between all nodes. Each of them stores and forwards information to all other nodes.

3. Transparency with Pseudonymity

Every transaction and its associated value are visible to all those, having access to the system. Each node, or user on a blockchain has a unique 30-plus character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.

4. Irreversibility of Records

To ensure that the recording on the database is permanent and ordered chronologically, various computational algorithms and approaches are deployed.

Each block stores some data(relating to transaction), a unique code called "hash” that allows us to tell it apart from every other block and the hash of the previous function. A hash is always unique, just like a fingerprint.

The first block can't point to the previous block and hence, it's called the genesis block.

To address the trust issue, blockchain networks have implemented tests, called “consensus models", for such computers to prove themselves before they can participate in a blockchain network to join and add blocks to the chain. One of the very common examples, as employed by Bitcoin is called “proof of work".

In this system, computers must “prove” that they have done “work” by solving a complex computational math problem. If a computer solves one of these, it becomes eligible to add a block to the blockchain. But the process of adding blocks to the chain, what the cryptocurrency world calls “mining” is not easy. In fact, as stated by the blockchain news site BlockExplorer, the odds of solving one of such problems on the Bitcoin network were about 1 in 5.8 trillion in February 2019. To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power and energy (read: money).

What makes it secure?

After a block has been added to the blockchain, it is really difficult to go back and alter its contents; that’s because each block contains its own hash, along with the hash of the block before it.

Now let's say you tamper with the second block. This alters the hash of that block as well. That will make block three and all the consequent blocks invalid because that no longer stores the correct hash of the previous block.

(Hash codes are created by a math function or algorithm that turns/converts digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.)

Instead of using a central entity to manage chains, it uses a decentralised peer to peer network. The node can use this to verify that everything is still in order and verify that it has not been tampered with. And if everything checks out, each node adds this block to their own blockchain. That is, all the nodes in the block chain create consensus.

So, to successfully tamper with a blockchain, one needs to tamper with all the blocks on the chain, redo the proof of work for each block and take control of more than 50% of the peer to peer network, which is impossible to do because in order to change a single block, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and inappropriable amount of computing power.

By allowing digital information to be distributed and not copied, blockchain technology created the backbone of a new type of internet.What is so special about it that makes us say it has industry disrupting capabilities?

Blockchain technology has a great scope in the world of modern technology where data protection has become a great challenge for people. Blockchain is essential and required to be adopted due to the following advantages:

1. Greater Transparency and Security:

Since transactions are verified by all the people owing to blockchain's open-ended capabilities, making changes is difficult without the consent of all the people and miners involved in the transaction. This helps to make data and transactions more secure. Also after a transaction is approved, it is encrypted and linked to previous transaction which is further recorded in a network of computers making it more secure.

2. Improved Traceability:

It is easy to trace the origin of transaction while using blockchain technology, which helps to trace errors and faults.

3. Increased Efficiency:

Blockchain technology helps to eliminate the middleman as it is a decentralized system giving rights to individual participants and reducing the need for people to reach out to financial institutions. Eliminating the third party helps to increase efficiency of the transaction.

4. Reduced Transaction Cost:

Since transactions are carried out without the involvement of middlemen, using blockchain can help reduce the transaction-cost making it cost-effective for the participants.

5. No Government Interference:

Such transactions exclude government interference making it more transaparent and independent for the currency and technology to flourish.

6. Reduces Frauds and Errors:

Provenance and consensus is a prominent feature of blockchain which helps to develop trust among people and reduce the chance of errors and frauds.

Uses of Blockchain:

1. Information and Security:

Data privatisation and localization has become a matter of debate in the current era. Blockchain, due to its salient features of smart keys and transparency can help retain useful data by insurance companies and health care sector where personal information can be encrypted and accessed by the user with a private key.

2. Voting System:

Votes can be manipulated with the use of physical paper. Blockchain can help secure such information, limiting its access by encrypting the data obtained thus adding to trust and accuracy.

3. Personal IDs and Certificates:

Data relating to birth certificate, Aadhar, passport etc. can be encrypted and secured through blockchain thus leading to data protection.

4. Cryptocurrency:

Blockchain technology is the backbone of cryptocurrencies that are functioning around the world specifically Bitcoin & Etherium.

5. Stock Markets:

It is the most apt field where blockchain can be applied. Blockchain can make stock markets more optimal through decentralization and automation. This technology is being applied in stock markets of Australia. Blockchain offers huge potential for tracing security lending and monitoring systematic risk.

6. Money and Transfer Payments:

The most sensible use of blockchain is transfer of money and making payments thus reducing the time for transfer and making payments more secure.

7. Smart Contracts and Bonds:

Contracts where transactions happen automatically after agreement is made are smart contracts. This eliminates need for intermediary thus saving time and money and providing a common platform to businessmen.

8. Internet of Things:

IOT describes wirelessly connected devices that can send and receive data. Reseachers are implementing blockchain technology for security of so many devices connected together. Smart applications can be protected and transferred through block-chain.

Negatives

Block-chain is revolutionizing the Finance industry, which is a given fact. But every revolutionary growth has seen setbacks in the form of some negatives. For a country like India, where internet connectivity is an everlasting issue, the positives of Block-chain get outweighed by its technological limitations.

Moreover, one of the most important limitations of Block-chain technology is lack of public faith to accept the same as legal tender. Even if it has the financial and cryptographic soundness, lack of replacement capabilities can result in ineffectiveness of the same. Moreover the risk of bogus transaction resulting in inefficiency is very high. The fact that an alteration in a single transaction can alter the entire chain of transactions is a safety hymn for the crypto believers, but at the same time, the possibility of bogus transactions by an anonymous owner of private and public key, can result in the whole chain of transactions getting disturbed.

Many might wonder the negatives of Block-chain underscore the positives and promulgate reason to skip the technology. The usage and popularity of any technology or invention brings before public eyes its downsides much more readily than the advantages. At this stage, lack of technology and acceptance along with the following risks are the biggest doubt-instilling factors for this showstopper of a technology:

1. Double Spending and Block-chain:

Double Spending problem is using a single digital coin more than once, i.e., in more than one transactions.

There was a time when BitGold hit the markets, a market disruptor, quite similar to Bitcoin in its features. Then, the latest means of digital payments was usage of electronic cash but failure of electronic cash and subsequent failure of BitGold suggests that FinTech greats couldn’t think of a proper solution to the double spending problem, but that changed with Bitcoin and accompanying Block-chain Technology. The problem was that there was no immutable record for every transaction with timestamps, which came with block-chain making it immune to double spending problem with confirmations from miners making crypto world more feasible. Any duplication will result in a clear indication of a counterfeit.

2. Hyperledger Fabric:

Hyper ledger Fabric is a Block chain Technology initiated by IBM with association of Linux, which has different aspects which make it more compatible and feasible for block-chain technology. Basically, Hyper ledger fabric has permissioned membership, making it more secure. Being a permissioned system, entry is possible only through Membership Service Provider(MSP). Moreover, it offers the ability to manage and create channels within channels with separate ledgers.

3. 51% Attack:

As the name suggests, it has links with the governance part of Block chain, which is dealt with by the use of democracy. Sometimes, a bogus new chain, separate from the normal chain is created by a miner, which usually reverses the transactions entered into by him, leading to double spending problem coming to fore. But how can a miner do that? The answer to this question lies in the fact that blocks are added with the help of hashing and faster hashing means more blocks- and more blocks means better acceptance as compared to the other simultaneous block chain running (the legitimate one). The problem is aptly named 51% attack as a miner with 51% consensus in the democratic world of block-chain will have the ability to enter into such counterfeit scams.

Conclusion

All in All, Blockchain Technology is only seen as a financial advancement and people often forget that even if Cryptocurrency fails, Block-chain has much more potential than the digital financial asset as Block-chain is just a technology, which as stated above can be used in various fields, other than finance. Its potential, with inclusion of advancements like Hyperledger Fabric can result in its success, but the things which are going to be most important for Block-chain going forward will be stability, technological advancement in modern industry and trust in the same.