Blockchain- an Introduction

The Digital Decentralised Distributed Ledger

Blockchain technology was introduced by Satoshi Nakamoto in 2008 when he implemented it in the crypto currency “Bitcoin”.

• With Blockchain he solved the problem of double spending without using a trusted authority or central server.

• Functionally, a Blockchain can serve as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.

• A Blockchain is a decentralised and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the collusion of the network.

Properties  :

• Prevention of data tampering

• Efficient Peer-to-Peer transactions without the involvement of a central authority.

• The Blockchain network lacks centralised points of vulnerability that computer hackers can exploit or any central point of failure.

• Data on the Blockchain network in incorruptible.

• Data is stored using the public-private key cryptography where the data is securely saved using public key and can only be accessed using the private key, thus making is secure and restricted.

• Every node or miner in a decentralised system has a copy of the Blockchain. Data quality is maintained by massive database replication and computational trust.

• No centralised "official" copy exists and no user is "trusted" more than any other. Transactions are broadcast to the network using software.

Types of Blockchain   :

•Broadly Blockchain network can be classified into 2 categories:

• Public Blockchain networks :- These networks are publicly accessible and anyone can join the network to become contributor, miner or member node. Some of the best examples are : Bitcoin, Ethereum (Crypto-currency wallets) etc.

• Private Blockchain networks:- These networks are as name suggests private and require a moderator to approve and allocate roles to nodes

Public Blockchain networks   

• Public Blockchain is a Blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process – the process for determining what blocks get added to the chain and what the current state is.

• As a substitute for centralised or quasi-centralised trust, public blockchains are secured by crypto-economics – the combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following a general principle that the degree to which someone can have an influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear. These Blockchains are generally considered to be “fully decentralised”.

•E.g. Bitcoin, Ether wallet etc.

Private Blockchain networks   

• Private Blockchain is a Blockchain where write permissions are kept centralised to one organisation.

• Read permissions may be public or restricted to an arbitrary extent. Likely applications include database management, auditing, etc. internal to a single company, and so public readability may not be necessary in many cases at all, though in other cases public audibility is desired.

• Some of the applications of the private blockchain networks can be Supply chain solutions specially P2P, Asset handling etc.

How Blockchain works??   

• Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.

Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralised version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.

Smart Contracts   

• Smart Contract is a piece of code that you upload into the Blockchain network that executes itself when the requirements are met.

• Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met. Ethereum is an open source blockchain project that was built specifically to realise this possibility. Still, in its early stages, Ethereum has the potential to leverage the usefulness of blockchains on a truly world-changing scale.

• At the technology’s current level of development, smart contracts can be programmed to perform simple functions. For instance, a derivative could be paid out when a financial instrument meets certain benchmark, with the use of blockchain technology and Bitcoin enabling the payout to be automated.

Namecoin 

• Created in 2010, Namecoin is best described as a decentralised name registration database. In decentralised protocols like Tor, Bitcoin and BitMessage, there needs to be some way of identifying accounts so that other people can interact with them, but in all existing solutions the only kind of identifier available is a pseudorandom hash like 1LW79wp5ZBqaHW1jL5TCiBCrhQYtHagUWy. Ideally, one would like to be able to have an account with a name like "george". However, the problem is that if one person can create an account named "george" then someone else can use the same process to register "george" for themselves as well and impersonate them. The only solution is a first-to-file paradigm, where the first registerer/registrar succeeds and the second fails - a problem perfectly suited for the Bitcoin consensus protocol. Namecoin is the oldest, and most successful, implementation of a name registration system using such an idea.

Colored coins

• The purpose of coloured coins is to serve as a protocol to allow people to create their own digital currencies - or, in the important trivial case of a currency with one unit, digital tokens, on the Bitcoin blockchain. In the coloured coins protocol, one "issues" a new currency by publicly assigning a colour to a specific Bitcoin UTXO, and the protocol recursively defines the colour of other UTXO to be the same as the colour of the inputs that the transaction creating them spent (some special rules apply in the case of mixed-colour inputs). This allows users to maintain wallets containing only UTXO of a specific colour and send them around much like regular bitcoins, backtracking through the blockchain to determine the colour of any UTXO that they receive.

Metacoins

• The idea behind a metacoin is to have a protocol that lives on top of Bitcoin, using Bitcoin transactions to store metacoin transactions but having a different state transition function, APPLY'. Because the metacoin protocol cannot prevent invalid metacoin transactions from appearing in the Bitcoin blockchain, a rule is added that if APPLY'(S,TX) returns an error, the protocol defaults to APPLY'(S,TX) = S. This provides an easy mechanism for creating an arbitrary cryptocurrency protocol, potentially with advanced features that cannot be implemented inside of Bitcoin itself, but with a very low development cost since the complexities of mining and networking are already handled by the Bitcoin protocol. Metacoins have been used to implement some classes of financial contracts, name registration and decentralised exchange.

Blockchain is a disruptive technology which is not only applicable for crypto currencies but can be applied to different use cases. The solution need not be using the public consensus model but private blockchain model can be used as well.

Useful Links:

https://bitcoin.org/bitcoin.pdf