Concepts of Blockchain
In my previous post, I introduced blockchain technology and noted in my future post I will be writing about how Blockchain works, and the value of adopting this fantastic technology. However, I felt logical to explain the essential blockchain definitions and concepts first. So, in this post, I have attempted to explain five such vital concepts. At its basic level, blockchain is a new class of information technology that supports fundamentally multiple technology concepts that combines cryptography with distributed computing. They are:
1. Distributed Secure Database
The Blockchain can be understood from a technology perspective merely as a distributed secure database. A model that supports a network of computers to collaborate towards maintaining a shared, secure database. This database consists of a sequence of blocks and each one record a data which is encrypted. The computer, also called node, on that blockchain network validates the transactions and add them to the block they are building. Then, it broadcasts the completed block to other nodes so that all have the copy of the database.
2. Consensus Mechanism
3. Distributed Shared Ledger
The distributed permanent secure database together with a consensus mechanism makes blockchain suitable for the storage of synchronized data across multiple geographical locations without any centralized administrator or centralized data storage. This secure, trusted, synchronized and distributed data stored in the distributed database maintained by the distributed network of computers are called distributed shared ledger.
These ledgers can be used to store data of tangible assets such as car and home, intangible assets such as currencies and votes or any other form of valuable information. It enables the replacement of a multiplicity of the private database within each organization with one shared and trusted database accessible by all parties involved. As an example, different healthcare provider collaborates and share a single ledger to cater to patient needs.
4. Smart Contracts
The blockchain is not just a database, and it is more than that. It enables to automate the collaboration in the form of an agreement, or set of rules that govern a business transaction without human interaction is called a smart contract. The smart contract is a computer code stored inside the blockchain and executed automatically as part of a transaction. It is a self-executing contract written in the lines of code. Like any other computer program, it takes input that executes the code and provides the output. As an example, a smart contract written can accept input as a bank balance of a person and increases and decreases the interest rate. By executing automatically such basic operations that are tamper-proof, blockchain removes the intermediate third-party institution with high-level of trust.
5. Mining, Miners, and Proof of Work
Mining is the process of adding transactions to the existing shared distributed ledger of blockchain adhering to smart contract set of rules and then distributed among all users of the blockchain after suitable consensus mechanism. The term is best known for its association with bitcoin, though other technologies using the blockchain employ mining. Bitcoin rewards participants also called Miners who run mining operations with more bitcoins. Because, mining is typically done on a dedicated computer, as it requires a fast CPU, as well as higher electricity usage and more heat generated than typical computer operations. Miners principal responsibility is to validate and approve every block contains transactions that get added to the blockchain. It is called a Proof of Work (PoW) in that every participant is challenged to solve the puzzle. The first team (Miners) that solves the problem wins.
Thank you for reading so far. You made it. I want to explain five more topics but will reserve it for my next post. Stay tuned!