Demystifying Blockchain: The Science Behind the Technology

Image Source- Forbes.com

You may have heard the terms’ Cryptocurrency’, ‘Bitcoin’ and ‘Blockchain’ and shrug them off as geek speak. However, you might not be aware that these terms are soon going to affect your daily life. Blockchain as a technological advance has the power to disrupt and transform scores of application areas such as Social Media, Healthcare, Financial Services, Real Estate, Digital Advertising, Global Logistics, Supply Chain and innumerable others.
Let us take the example of the leading digital currency in the market nowadays and probably the first cryptocurrency disrupting the financial services sector worldwide, the Bitcoin. How is blockchain associated with Bitcoin? Well, it is the technology behind the cryptocurrency. Yes, Bitcoin’s smooth transactions and security for its users (peers) are realized by the technology called blockchain.
If you hold the cards in technology, you are already familiar with blockchain. However, there are still many people out there who have never heard of it or misunderstood the technology and its possibilities.

Blockchain: The Background

Stuart Haber and W. Scott Stornetta first conceptualized blockchain in the early 1990s using the concept of Merkle trees. However, in 2008, pseudonymous Japanese software developer, Satoshi Nakamoto published the first schematic representation and a scientific paper on blockchain and later successfully implemented it in 2009 as the platform for Bitcoin digital currency.

A Few Words about Cryptocurrency

As of Jul 2019, more than 900 cryptocurrencies were available across the globe. Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), DASH, Ripple (XRP), and Monero (XMR) are a few names that top the list of cryptocurrencies.
Cryptocurrency, as an idea, was conceived way back in the 1980s by David Chaum. He developed Blind Signature Technology that ensured total privacy for making online transactions. He designed ecash as an anonymous cryptographic electronic money or electronic cash system in 1983. He evolved Blind Signatures through DigiCash software as an early electronic payment system. It improved security for its users by providing secured keys. This system of cryptographic keys arrested the third parties trying to access personal information through online transactions.

Technology

As the name suggests, the blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptographic keys. A  system of hash pointer coupled with a timestamp and the transaction data serves as a link to each block from a previous block. Blockchain Technology got primarily introduced as Blockchain Technology before the merger of the Block and Chain as a single word in 2016. This video explains the concept in a simple way.

What makes blockchain better when compared to the available database technologies is its usage of peer to peer network as decentralized and distributed storage of data. Blockchain merely acts as a distributed ledger that can record transactions between two parties verifiably and permanently.

To understand the terms peer to peer network and decentralized data storage, let’s talk about the conventional ways of data collection and stockpiling on any network.  The standard practice is that all the system’s data is stored at a centralized place, usually referred to as servers that are maintained by database administrators. The commercial banking service, for example, is based on this concept.
In contrast to this practice, in the blockchain, the data is not stored at any single location; instead, it is stored in widespread blocks which make it secure against any hacks and alterations of data. Decentralization of data by storing the information at block level alters impossible even for the administrators.

The word block here refers to a single user account, and the users are known as peers. As this whole system of transactions happens between only registered users or peers, it gets referred to as peer to peer network. One needs to register himself first to enter the system. Thus, decentralization and peer to peer transactions secured with cryptographic keys constitute the soul of Blockchain Technology.

The Methodology

Blockchain facilitates secure online transactions. Public and Private are two broad types of blockchains. A Blockchain database consists of two kinds of records:
(a) Transactions
(b) Blocks
Blocks possess batches of valid transactions that are hashed and encoded. Each block has the hashcode of the previous block in the blockchain, and it links the two.
The transactions are collected in the blocks, which are found approximately every ten minutes in a random process called mining. Each transaction transfers the ownership of the data (Balance in the case of Bitcoin transactions) from one block to another.
 The flowchart above shows that every block is holding the transaction data and time stamp along with the hash pointer to the previous block. Here, each transaction data can keep details of various transactions that happened from a single block (a user). Let’s understand these terms.

Timestamp: The time when the block was formed.

Prev_Hash: This part holds a pointer to its parent block or previous block.

Tx Root ( Merkle root): Merkle root is a type of representation used for the description of all the transactions that happened from the block.

The Block’s Hash: It holds the data of the present block so that it can be accessed and linked to the next block.

A transaction once submitted to the network gets processed with a timestamp and its verification. Later, miners update this information to the Merkle root.
In the case of Bitcoin transactions, users send digitally encrypted payments to the network. The participants are known as miners who verify and time stamp the transactions for which they get rewarded in bitcoins based on the amount transferred. This transaction is finally updated to the Merkle root (transaction history) in the public database of the blockchain.
In simple terms, blockchain represents a distributed digital ledger that is used to record transactions across many computers. Retroactive alteration of these files is not possible without corresponding modifications of all subsequent blocks and the collusion of the network.
 The strengths of blockchain include decentralized and distributed database, peer-to-peer network, and cryptographic keys. It ensures that only the owners who possess the secured private keys can perform any alterations to the blocks they own in the blockchain. It makes blockchains ideal to record events such as land records, consumer and B2B payments, KYC, identity management, patents and copyrights, prescription drugs, digital voting, and much more. This video from Lucas Mostazo explains the technology in a lucid way.

The Applications

Is blockchain’s use restricted to cryptocurrencies? No, the application areas of blockchain technology are endless. It can form the core component in the spheres of Financial Services such as Banking and Insurance, Social Media, Healthcare, Manufacturing, Global Logistics, Retail and Supply Chain, Real Estate, Distributed Cloud Storage, Aviation, Internet of Things (IoT), Digital Advertisements and many others.
Blockchain technology is evolving every day. It is here to stay. Numerous developments are taking place across different application areas worldwide. Companies like IBM, Microsoft, Deloitte, Ernst & Young, PwC, KPMG, and many others are trying to create their private blockchains. A few hurdles exist such as lack of awareness and acceptance among people and the absence of a regulatory mechanism. However, the future of the technology looks bright, and we need to pay attention to it.

For a detailed understanding please go through
Understanding Blockchain: Is It a Significant Shift in Technology?
Blockchain Explained
Blockchain Support Center