Blockchain 4 Non-Technical
If you are a non-technical person and you are interested in Blockchain you are at right place.
This blog will give you an overview of:
Blockchain
Blockchain is a special type of database which is stored in many servers/computers (called Node) and these servers are connected together to validate records stored in these nodes and synchronize them via peer-to-peer network. This special database is called Ledger and it is used to record transection (exchange happening between two people/address) in a chronological order inside something called a block. Once a block is full a new block is added thus forming a chain of block, Blockchain. Blocks are connected using cryptography to make Blockchain immutable as data tampering is one of major threat in storing records online.
Blockchain Components
Block: Block is used to record data. In a Blockchain data always lies inside a block. A block has may fields (part) as it has to perform may task like recording transections, connecting to previous block and next block, securing Blockchain etc.
Ledger: Ledger is a chain of blocks. Ledger can be visualized as a register and blokes are its pages. Blockchain is a database of distributed ledger, so a copy of the ledger is available at many places in the network. These distributed ledgers synchronize with each other so that each ledger has the same record.
Node: A node is a server to store ledger. A Blockchain has many nodes and these nodes are connected via peer-to-peer network. Nodes synchronize with each other so that each node has same records in their ledger. In a public permission less Blockchain anyone can setup a server to store open ledger and become a node.
Token: Token is a digital asset. Token always remain inside the Blockchain (ledger). Tokens are not in your wallet. When you buy a token it is simply added to your address inside the ledger. When you sell your token it is subtracted from your address inside the ledger in the form of a new transection.
Classification of digital token:
1). Digital Token can be a cryptocurrency or a cryptoasset. If the digital token represents digital transection it is called cryptocurrency. If it represents a document, good or container it is called cryptoasset.
2) Digital Token can also be classified as utility token and security token. Utility token give access to products and services. Security token entitle ownership in the business.
3) Digital Token can be a fungible or non-fungible token. Fungible tokens like Bitcoin, Ripple, Central Bank Digital Currency (CBDC) etc. , non-fungible tokens like NFT, Digital Art
ADDRESS: In digital world you are not represented by your name but by your digital address. A digital address is a number like this 1f23ca738d2838ae2c34. It is a unique number on the network. It is just like IP Address.
Miner: A miner is a person with a computer system or an automatic computer system who perform mining activities. Mining activities include validating digital signature, validating that the address has sufficient balance to do transection by checking through multiple ledgers at different nodes, writing transection inside the block/ledger, adding new block to the Blockchain, etc. etc.
Peer-to-Peer Network: Peer-to-Peer network is a network in which all ADDRESSESS are of equal level. Equal level means, if one address want to communicate with another address on the network they don’t require any middle man who will establish a connection between them or who will authorize the connection. Here all are at equal level, no one has a superiority in the network, no one control the network, and anyone can communicate directly with anyone if she has her address.
Consensus Algorithm: Consensus protocol sets rule on formation and working of Blockchain network. Rules like what will be the size and fields (content) of a block, how to add new blocks, who can see the ledger, who can become a node (keep copy of ledger), who can mine the Blockchain, what kind of network connection will be for communication, how many minimum nodes to be validated before conforming a transection, etc. etc.
Examples of consensus algorithm: Proof-of-work, proof-of-stake, delegated-proof-of-work, proof-of-elapsed time, practical Byzantine fault tolerance, etc.
Digital Wallet (DW): If Blockchain is a bank then digital wallet is your Passbook. You are represented by your digital wallet on the Blockchain. Using digital wallet you can make transection, check balance, etc.. To make transection you have to do digital signature. Digital signature is done through DW. DW use your Private Key to do digital signature. Miners use your Public Key to verify your digital signature.
Your digital wallet represents your address. Each DW has a unique address. This address is derived from your public key using cryptographic Hashing function. Your public key is derived from your private key using Elliptical Curve Multiplication function. Your private key is derived from your seed phrase using Hashing function.
Your digital wallet contain your private key, public key and your address. Seed phrase remain with you. Private Key remain in encrypted form inside your wallet and you need your seed phrase to decrypt it and sign a transection.
Smart Contract
Smart contract is a computer code to perform operations:
Smart contract is executed on 100s of different machines simultaneously using Distributed Ledger Technology (DLT). These are automatic operations without Human intervention. Here, code is law. Unlike tradition contracts there is no need for third party to be a granter of the contract and check the proper execution of the contract, all things are taken care by the code/program.
Types of Blockchain
Blockchain is classified based on who can see the Ledger and who can Mine the Ledger.
i. If the Ledger is public meaning anyone can become a Node and anyone can see what is on the ledger like who won how much token, who transferred how much to whom, etc. and if the miners are Open Group meaning anyone can become a miner then such Blockchain is called Public Permission-less Blockchain. These Blockchain are used by cryptocurrency communities like Bitcoin and Ethereum.
ii. If the Ledger is public but the miners are close group, meaning community will decide who will be the miners such Blockchain is called Public Permissioned Blockchain. These Blockchain are used by Payment/ Remittance communities like Ripple.
iii. If the ledger is private, meaning only selected few can see the ledger and become a Node, and miners are also close group such Blockchain is called Private Permissioned Blockchain. These Blockchain are used by private communities like Banking/Finance Network, corporates eg. Hyperledger by IBM, Corda, Quorum, etc.
Working of Blockchain
To understand the working of Blockchain you need to understand working of following interactions:
i. How one transection interact with another transection
ii. How one block interact with another block
iii. How Miner interact with Node
iv. How a Node interact with another Node
v. How Wallet interact with Blockchain
vi. How user interact with Wallet
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Transection to Transection Interaction
Different Blockchain follow different method to interaction. Bitcoin follow double entry bookkeeping method to record transection where each transaction also keep record of previous transection from where Token is coming for this transaction.
Block to Block Interaction
Blocks interact by tracking back block number and transection ID.
Miner to Node Interaction
Each Node has the Ledger and an address. Miners go to this address and access the Ledger to verify if requested transection has sufficient balance. If wallet address has sufficient balance the miner will create a new transection in the current or next block of the ledger. If the wallet has insufficient balance the miner will reject the transection request.
Node to Node Interaction
Nodes interact with each other so that all nodes have same record in there Ledger. Once a new block is created in a node by a miner this new block is send to all other Nodes so that each node can add this new block in their Ledger, hence all nodes have same record. The interaction occur via a P2P network.
Wallet to Blockchain Interaction
Each wallet has a unique address. Wallet request Blockchain to make transection on it address by signing the transaction. Miner will check and validate if this wallet address has sufficient balance in the Ledger. If this address has sufficient balance in the Ledger of the Blockchain then the transection request will be added in the Ledger, hence a successful transection.
User to Wallet interaction
There are three types of wallet – Paper Wallet, Hardware Wallet and Software Wallet. A wallet has three things- private key, public key and a unique address. In Paper Wallet token value, private key and address are printed side by side, you can just scan the address and private key, and transfer the token value from this address to any other address, remember token always remain inside the Ledger and it is transferred from one address to another inside the Ledger only. In Hardware and Software wallet, your wallet has private key in encrypted form and you have to enter your password (eg. Seed phrase) in order to decrypt the private key to sign a transaction. Hence, user interact with wallet to decrypt the private key and request Blockchain to make a transaction by signing it.
How to build a Blockchain
To build a Blockchain you have to build a Block then build a linking method to link the Blocks next you have to design a consensus algorithm and finally build a smart contract.
To build a Block you have to build a Transection system, how you will record a transection eg. Double Entry bookkeeping. Next you have to build various fields of a block like Address field to keep records of previous and next block address, Data field to store transection address, token value, date & time of transection etc.. Besides this you also have to secure the block so you have to build fields for security purpose like storing Nonce, Hash and Timestamp.
To link blocks you have to keep in mind that the blocks should be linked such that the Blockchain become immutable and it should be easy to track back transection records and token value of an address. Various cryptographic techniques are used to do so.
Consensus Algorithm is design to decide things related to functioning of Blockchain like who can see the Ledger(Blockchain), who will be the miners, Who can become a Node (keep record of Ledger), When/How to add a new block, in case of disagreement how to reach a consensus etc.
A smart contract is a program written in a programming language. Building smart contract means you are building the structure of functioning of Blockchain network eg. How nodes will communicate with each other, how node will communicate with miner, how miners will validate transection, how node will communicate to wallet, etc. Here code is Law! = Trustless execution
Application of Blockchain
A Blockchain network does two things – 1. It keeps Records &
2. It validates the Records
In real world records are kept in two way - 1. By entering data in a register &
2. By memorizing the data (entering data in human memory)
In real world the records are validated in two way – 1. By checking record in register &
2. By recalling records from memory
Most of the work in this world revolve around keeping the record and validating the record. Most of Govt. jobs are just to keep the record, maintain the record and validate the record. Record keeping is done everywhere in business world, keeping the record of railway passengers, flight passengers, grocery in home/store/distribution center, patient in hospital, drugs in drug store, who has how much loan, which land belong to whom, criminal charges against a person, student attendance and mark, etc. etc. Blockchain can do these works.
Currently Blockchain is used in:
• Decentralized currency – Bitcoin
• Central Bank Digital Currency
• DAPPs, DEXs, NFT, Games, Gambling, Decentralized Storage
• Decentralized internet – web 3.0
• Decentralized Autonomous Organization
• Decentralized Domain Naming System – Ethereum name services, namecoin
• Finance – DiFi , Centralized Finance
• Technology, Supply Chain, Insurance, Automobiles, Entertainment
Some of the well-known enterprises building Blockchain are IBM, Amazon, Microsoft, Oracle, Tencent, Microsoft, VMware and Baidu.
Some of well-known enterprises invested in Blockchain are Apple, Samsung, Intel, Facebook, Prudent, American Express, Nestle, Berkshire Hathaway, Pfizer, Walmart, Toyota, Ford, Daimler, MetLife, etc. etc.
