A blockchain informative article for the non-initiated.

The Blockchain is a young technology that had the cryptocurrency Bitcoin as a kickstarter to spread around the world. Surely blockchain is not represented by Bitcoin alone, it is in itself a revolutionary technology that made possible the highest level of power decentralization so far and Bitcoin is just a blockchain-based financial project which already showed the major benefits of blockchain applicability in the financial sector. Many scientists agree that the blockchain is the world’s greatest invention since the Internet.

The world is advancing with fast steps and technology now is closer to us than it has ever been. More people are connected to the internet today than ever before, many already accept it as a big part of their life. The internet was the technology that brought the biggest revolution of freedom upon the world and it continues to do so ever since. Everyone with access to internet has now infinite possibilities, from accessing education of any kind to building a business, everything is now possible to do via the internet. The uncensored information reaches every corner of the world in a split of a second and almost everyone can access it.

It is only reasonable to think that most of the processes we are physically doing now on a daily basis are starting to be done way easier on the internet and this is a great step forward because it helps saving a lot of time and costs for everyone and we all know that time is the most valuable asset we have.

The presence of a middleman was so far needed to ensure a level of trust for every type of transaction, whether it is a simple money transfer or an acquisition of any kind. The middleman has the role of registering that transaction and keep the transactions record to ensure nobody could ever claim that a transaction never happened even if it did. However, this is a very costly and questionable process today, as people are easily corrupted and could take part for one side or the other “for the right price” as they say…

We are now in the presence of a great emerging technology that can and will improve the way we do business in the following decade. For a more technical approach of how the blockchain works subject we could of course read a handful of books with hundreds of pages written by highly appreciated cryptographers and computer scientists and it will totally worth it, but in this article we are going to discuss the subject in a simpler manner, so anyone can understand the concept of blockchain and how it works.

Before we dive in, I want to thank you for hanging in and I want to assure you that if you really have an interest in the blockchain technology, this article will help you understand the basics of blockchain and how it works. Take the time to read all the informations below and you will surely have a good understanding of the blockchain technology even if you are not a tech savvy! Bare with me and you will reach the level of understanding you need to start learning more about this innovative and amazing technology or even to start telling others about this tech wonder! This being said, let’s proceed!

What is the blockchain?

The blockchain is a computer-based technology that is built by mixing Cryptography, Computer Science Engineering and Game Theory. Don’t worry if you are not familiar with some of these terms, you will only need them if you dive into the more technical part of the Blockchain.

The blockchain is the safest and simplest method to transfer information or value from A to B without being worried about the possibility of a third party interfering and corrupting your transfer, practically making it the most efficient way to do P2P(Peer to Peer) transactions. The name “Blockchain” stands for the architecture of the technology and we are going to explain it in the next step.

The decentralization properties of the blockchain are inherited from its architecture, but there are a few aspects to mention regarding this part. There can not be a 100% decentralized process in any system, but the difference is in what percentage that technology is centralized or decentralized. The difference between a centralized network and a decentralized network is huge. From a safety perspective, on a centralized network there will always exist a single-point of failure which can be exploited to bring down that specific network. There is no single-point of failure in a blockchain network, so to be able to bring down such a network you will need to outrun all the nodes in the network (this part be explained in detail in the next step as well)

How does the blockchain work?

The blockchain network is empowered by miners(computers/nodes), which are keeping the network alive and secure. The mining process is the process that ensures creation of new blocks through solving a specific block hash which represents the cryptographic part of blockchain. The mining process can be done through a few different consensus protocols, but the most widely spread and used are PoW(Proof of Work) consensus protocol and PoS(Proof of Stake) consensus protocol.

The Proof of Work consensus protocol is based on hardware computing power, whether we are talking about CPU, GPU(or FPGA) or ASIC mining, where the more computing power you put into the network, the higher will be your hashrate, so the more blocks you will be able to generate.

The Proof of Stake consensus protocol however is not based on computing power, but based on the amount of assets you are holding in a specific wallet(wallets will be explained a little later) the more assets you are holding, the higher will be your hashrate, so the more blocks you will be able to generate. The PoS consensus protocol can also use masternodes which we will explain at the wallet section.

Most projects are using the PoW consensus protocol at this time and few of them are considering the switch to PoS once the emission of new coins will end. However, there are some projects in the space which are already using both consensus protocols (PoW and PoS) at the same time, with a fixed set % of participation in the network for new block mining from each consensus protocol.

Why should someone put his hardware to mine on a PoW consensus based blockchain network? Simple! Because every blockchain is incentivizing its miners by rewarding them for every solved block. This is the case of cryptocurrency, where miners receive the block reward (the amount of new coins created with each block). However, at this time, most of the cryptocurrencies already have a lot of miners on their networks, so joining with a single computer would not be appealing due to the power consumption and maintenance costs.

When it comes to the PoS consensus based networks, things are a little different, as you will not have a higher power consumption and maintenance cost, but you will be required to hold a bigger amount of assets in your wallet. However, this method will still require a cost to be able to procure those assets and to keep the wallet online 24/7.

A blockchain’s functionality is ensured by a network of computers called nodes, which will store, validate and secure every transaction in blocks that are mined at a fixed time. Each block contains the full ledger of all past and current transactions and all blocks are validated by every node, this ensures the full consensus presence in the network. Each node is aware of all the other nodes present in the network and they are constantly communicating and verifying each other so the information present on the blockchain is always correct!

The network is sustained by hashing power which ensures the mining process of every block and represents the Cryptographic part of the blockchain. This part is essential for the security of a blockchain network. The total hashing power of the network can determine the level of security, where more hashing power means a more secure blockchain and at the same time will increase the mining difficulty. This will discourage any potential attacker to interfere with the blockchain, because his attack will have costs that will exceed by far the benefits of his attack, this makes it it highly unlikely to happen, but not impossible. However, today we have different computer science engineering technologies that cand be implemented into the blockchain architecture and make a blockchain very secure even with a lower hashing power.

The blocks are mined on a chain-like method, starting with the Genesis Block, after which the following blocks will be mined. As I previously mentioned, each block is aware of the full history of past and current transactions, as it can be seen in the representation below.

When a block is mined it is important that all nodes will agree on the solution for the block hash, if one node solves the hash it will inform all the other nodes about the solution and only when all nodes agree the block will be validated, if not it will be considered an “orphan” block and will be rejected by the network, after that the whole process will start again, restarting the mining(hash solving) process. This ensures the full consensus on the network and makes it possible for all nodes to have an identical copy of the blockchain transaction history.

A blockchain network can be both Public and Private, as well as Centralized or Decentralized(only in theory). The major advantage is that even if a central entity, is controling a blockchain network, making it a “centralized blockchain”, there will not be a single-point of failure where if one server is compromised, the data on that server will be lost. On a blockchain network, all the nodes will have full copies of data, so in order to tamper with the network they should bring down all nodes, which is highly unlikely, but of course it is not impossible. Difference between traditional centralized systems and the decentralized blockchain is presented in the figure below.

Figure extracted from the Book: Beginning Blockchain: A Beginer’s Guide to Building Blockchain Solutions

A public blockchain will provide everyone access to the transaction history through a public explorer that will show every transaction from the genesis block until the current one as well as the exact updated balance for every address, together with the full list of addresses generated on that blockchain. At the same time, a private blockchain will not allow everyone to see the transaction history and all transactions will be hidden from the public. One would only be able to see the balance of one address if the owner of that address makes it public. This is a method to ensure privacy where it is required, however the security of the blockchain will rely on the same properties that were aforementioned.

An address is found in the wallet and is composed from two different keys. A public key which represents the address itself that can be shared with the sender, this way the other party will be able to send to that address the desired asset(data,value…) and a private key which is the most safe way to ensure the security of your assets, whether we are talking about data or value. This private key must be kept safe because it represents the way to getting back your assets in case something happens with your pc and you lose the data present on your PC.

The wallet is the end-user application that is used to store, receive and transfer assets in and out of an address. Through the wallet you can view and generate new addresses, but also save their private keys and make backups of the wallet to secure your assets. These addresses are used to receive your rewards from both PoW and/or PoS consensus protocols, depending on which is used by the network you are present in. On a PoS network the wallet itself can represent a node if we are talking about a masternode which means a fixed amount of assets that must be locked in a wallet address and will generate revenue from just holding the assets in the wallet.

It is usually recommended for masternodes to be hosted on VM(virtual machine)servers and not on your personal computer, but that depends on each project. The wallet needs to be online 24/7 in order to help the integrity of the chain and increase the security of the network. One could compare a masternode with a bank deposit which generates interest. There are also networks that allow staking any amount of assets, not just by setting up masternodes with a fixed amount, in order to generate revenue, as we explained earlier in this article.

Why do we need the blockchain?

If you had the will to read through this article until now, you already understand that the blockchain technology is highly resistant to attacks from third-party entities(individuals or companies) and it also eliminates the need of a middleman to ensure the trust between a sender and a reciever of assets.

Besides maintaining a secure and trustless network for transactions, the blockchain is also a perfect place develop different applications and it will help every industry in the world that needs to store information in a secure way, through smart contract applications and not only. Any information stored on the blockchain cannot be falsified, corrupted, denied or deleted.

Imagine a healthcare system where every hospital in the world has access to a comune blockchain network where your medical record is stored. If you are from US and travel anywhere in the world where you suddenly encounter a health scare, making it impossible for you to communicate with the medical crew, the doctors will know exactly what your health risks are, or allergies, or any other vital information, and lives can be saved.

Imagine a contract signed between two entities where nobody can tamper with it anymore without mutual agreement and neither one of them can deny its existence.

Imagine an artist or a scientist simply registering his rights for his work on the blockchain so nobody can ever steal the credits for his work.

Imagine a situation where you simply hand over some money to somebody and they can never deny the existence of that payment.

Imagine being able to store your money on a blockchain network without having the fear that your money can disappear like it could happen from your bank account.

All these and many many more advantages are here because of the blockchain technology, but I will leave some of them for you to discover!

What is next for the blockchain industry?

We reached a point where nobody can denie the existence of this technology, many governments around the world are already developing their own blockchain-based networks for different domains, there are even countries exploring the financial benefits of moving their economic systems from the traditional fiat money to the digital money stored and transacted on blockchain.

No more counterfeit money, ever. A forever cleaner image on the direction of the economy and money flow in or out of the country. The Internet of Things industry is already implementing the blockchain technology in their system. You will no longer need to call the dealership’s car service to make an appointment, the dealership will already be aware of your problem from the second it appears and when you get your car to the service, the parts will already be there. A lot of time will be saved on every end and on every aspect of our lives!

One thing is clear, the blockchain is here to stay! The next phase of the internet is here and is bringing with it more freedom and safety for every user than ever before.

There are a lot more informations about the blockchain technology and more technical aspects of it that have not been covered in this article, however I hope that this article answers many of the questions you already had about this emerging technology and helped you to be one step ahead in a continuously evolving world. Stay tuned and follow my page because there will be many other important informations about blockchain in the future!

If you liked this article, please share it and help others to get to a better, clearer understanding about blockchain and some of its insights, at least to a basic level.

Resources for this article:

Personal knowledge accumulated in time

Book: Beginning Blockchain: A Beginer’s Guide to Building Blockchain Solutions

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