BlockChain: Digital Ledger of Economic Transactions

A blockchain is a growing list of records, called blocks, which are linked using cryptography (Cryptography is used in two ways here. The first is via algorithms called cryptographic hash functions and the second is the instance is to create digital signatures, which are used to provide authentication, data integrity, and non-repudiation). Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree). By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, (Buy Bitcoin) the tech community has now found other potential uses for the technology. The first blockchain was proceeded by a person known as Satoshi Nakamoto in 2008. Nakamoto improved the design in an important way using a Hash Cash -like a method to add blocks to the chain without requiring them to be signed by a trusted party. The design was implemented the following year by Nakamoto as a core component of the cryptocurrency bitcoin, where it serves as the public ledger for all transactions on the network.

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” – Don & Alex Tapscott, authors Blockchain Revolution (2016).

A blockchain carries no transaction cost. (An infrastructure cost yes, but no transaction cost.) The blockchain is a simple yet ingenious way of passing information from A to B in a fully automated and safe manner. One party to a transaction initiates the process by creating a block. This block is verified by thousands, perhaps millions of computers distributed around the net. The verified block is added to a chain, which is stored across the net, creating not just a unique record, but a unique record with a unique history. Falsifying a single record would mean falsifying the entire chain in millions of instances. That is virtually impossible. 

“Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts: Blocks store information about transactions like the date, time, and the dollar amount of your most recent purchases, Blocks store information about who is participating in transactions. A block for your splurge purchase from an e-commerce site would record the name along with the desired site and your purchase is recorded without any identifying information using a digital signature, sort of like a username, and blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block.

“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again). With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people. Imagine the number of legal documents that should be used that way. Instead of passing them to each other, losing track of versions, and not being in sync with the other version, why can’t all business documents become shared instead of transferred back and forth? So many types of legal contracts would be ideal for that kind of workflow. You don’t need a blockchain to share documents, but the shared documents analogy is a powerful one.” – William Mougayar, Venture advisor, 4x entrepreneur, marketer, strategist, and blockchain specialist.

Due to three main properties of blockchain technology, it has gained wide-scale popularity across the globe, they are Decentralization, Transparency and Immutability.

Earlier we were fully devoted to centralized services (a centralized entity which stored all the data and you’d have to interact solely with this entity to get whatever information you required such as client-server model) but they have several threats and defects such as: As the data was stored in one single spot so it make easier to the hackers to target out the spots, during software updates it would stop the entire system, nobody would access the information a centralized an entity that it possesses if someone shut down and also if the entity gets corrupted then all data gone. But, in a decentralized system, the information is not stored by one single entity. In fact, everyone in the network owns the information.

A person’s identity is hidden through complex cryptography and their identity is only showcased by their public addresses only. A person’s real identity is secure but one can see all the transactions carried out by the public address of the person. This was never experienced before in any of the financial systems so this extra needed level of accountability which is required by some of the traders.

Immutability is the context of the blockchain, which means that once something has been entered into the blockchain, it cannot be tampered with. Blockchain gets this property due to a cryptographic hash function. In simple terms, hashing means taking an input string of any length and giving out an output of a fixed length. A cryptographic hash function is a special class of hash functions that has various properties making it ideal for cryptography. There are certain properties that a cryptographic hash function needs to have in order to be considered secure. The blockchain is a linked list which contains data and a hash pointer (which is similar to a pointer, but instead of just containing the address of the previous block it also contains the hash of the data inside the previous block) which points to its previous block, hence creating the chain

“I really like the off-chain transactions and smart contracts idea. This will allow the creation of better-decentralized applications, it will increase the blockchain transaction capacity and it will make p2p transaction and smart contacts cheaper” said Yordan Galabov.

This technology gives internet users the ability to create value and authenticates digital information.