#Issue 1: Simplifying Blockchain
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Simplicity is the ultimate sophistication - Steve Jobs
The way to understand any concept is to simplify it. But simplification is easier said than done. In this newsletter, we aim to simplify an exciting, upcoming technology - Blockchain in plain, simple layman language. So grab a 'chai' and hop onto to read about 'chain'.
Ask the right questions to understand any concept - What, Why, and How?
What is Blockchain?
The word ‘blockchain‘ is made up of two separate terms, ‘block’ and ‘chain’.
A block refers to a collection of data, and a chain refers to a public database of these blocks, stored as a list. Thus, blockchain is a growing list of records that leads to a formation of a chain - hence ‘Block-chain’. These lists are linked using cryptography - an essential element of the blockchain technology (you would have come across E2E encryption from recent Whatsapp privacy policy update - a use case of cryptography).
During your high-school classes or whenever you went to a bank, you would have come across a term called ledger - essentially a book of accounts. Blockchain is just a ‘digital ledger’ - that is duplicated and distributed across a network of computer systems. It is necessary all the computers which manage this ledger are on the same network of that blockchain.
Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every ‘participant’s ledger’.
Why Blockchain?
The world heard of blockchain as early as 2008 (yes that’s the year when the Wall Street went nearly bust) as a part of a proposal for Bitcoin (at last, we have taken the name!) The aim of the proposal was to create and circulate money without banks.
Why would anyone think about it? What was the motivation behind creating a peer-to-peer money transaction without banks? Maybe the creator of the proposal had lost quite a lot of $$$ in the 2008 financial crisis, that he decided to take Wall Street out of the equation itself. And that too through technology!
It’s all about trust, honey!
Blockchain invented a new paradigm to solve the age-old problem of human trust. The underlying technology doesn’t take into account any central actor in any system, instead, it buys into the trust of all the stakeholders in the system - thus democratizing the entire process. If anyone in the system wants to change it, it would involve convincing 51% of all stakeholders in the system - which isn’t easy in a physical as well as in a digital Internet-driven world.
The technology was actually a move from centralization to de-centralization. Rather than any single entity being an authority/ broker/ agent/ proxy/ representative between any two individuals/ parties/ institutions/ companies/ countries, the network itself would become the authority over anyone else.
In technical terms, a key feature that has touted blockchain as a revolutionary ledger-based technology was the ability for the network to operate in a decentralized form.
In a typical public blockchain, there is no single point of authority that dictates the actions of the rest of the network. Instead, blockchain networks rely on an overall consensus which is critical to the validity and security of the data held on the network. The consensus is a mandate of standards each block on the network must adhere to.
Further, blockchain records information in a way that makes it difficult or impossible to change, hack or cheat the system. Remember to convince > 50% of stakeholders on a distributed system? It ain’t so easy.
Lesson of the day - by blockchain, don’t expect more ‘Lehman Brothers’ to happen!
How does Blockchain work?
Coming to the last question, how does it really work?
A Blockchain network is basically a collection of nodes. Any device connected to the blockchain can be classified as a node and examples include - servers, computers, laptops, online wallets, and mobile phones. As it’s a network, the nodes are connected to each other and they constantly update all the blocks with the latest transaction information that is being added to the blockchain.
Nodes act as gatekeepers and allow anyone to transparently view transactions or data conducted or held on the network. The core benefits of nodes are to ensure the data being held on the blockchain is valid, secure, and accessible to authorized parties. The more nodes a blockchain has, the more decentralized it becomes and thus resilient to power outages or system failures.
When a new piece of data (block) is added to a blockchain, a node will communicate the block to other nodes on the network. Based on the validity of the new block and the type of the node, the other nodes can reject or accept the block (we would go into types of nodes in the next newsletters). Once a new block is accepted by the node, the information is stored and saved on top of the pre-existing blocks. This process of new transaction blocks, their validation, and addition to the network continues and thus forms the complete blockchain.
That’s it for today, folks! Hope you have got a basic understanding of the What, the Why, and the How’s of Blockchain. Don’t miss to hit the ‘like button’ and do share if you are liking the newsletter!
Want to read and deep-dive more, head down on the sources and references:
https://blockchainhub.net/blockchain-intro/
https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain
https://www.seba.swiss/research/Classification-and-importance-of-nodes-in-a-blockchain-network