Blockchain Unleashed: A Path to Secure, Transparent Transactions

We already purchase groceries, clothing, devices, and other everyday necessities. Many of us have experienced frustration when encountering a nonfunctional credit card during these transactions. It can result from the bank’s system failure, leaving its customers unable to make payments. What if the point of sale (POS) system had access to a ledger showing your debit and credit card’s real-time balances? This would enable your card to remain functional in the supermarket, even if the bank’s systems are down. Blockchain technology, also known as distributed ledger technology, offers a solution to this scenario. Blockchain has been in existence for over a decade and is gaining increasing attention and utilization across various industries, including finance, healthcare, and supply chain management. Its potential benefits, such as heightened security, enhanced transparency, and reduced transaction costs, are driving its practical applications.

So, what’s the overall hype about blockchain technology?

If you have been involved in investing, banking, or cryptocurrency in the last decade, you are likely familiar with the term “blockchain,” which underpins the Bitcoin network. As you delved into learning about Blockchain, you have probably encountered definitions like “Blockchain is a decentralized, distributed, public ledger.” Undoubtedly, Blockchain is a remarkable invention, and it is attributed to an individual or group using the pseudonym Satoshi Nakamoto. It has evolved into something bigger, and the fundamental question on everyone’s mind is: What is Blockchain? The original blockchain technology is an open-source platform that provides an alternative to traditional Bitcoin cryptocurrency transfer intermediaries. It employs collective ecosystem verification, offering significant traceability, security, and speed. By enabling the distribution but not replication of digital information, blockchain technology has laid the groundwork for a new type of Internet.

Initially tailored for the digital currency, Bitcoin blockchain, the technology community has identified other potential applications. So, why should we call it “blockchain” if it’s so advanced? The term “blockchain” essentially signifies that digital information (“block”) is stored on a public database (“chain”). We can also define Blockchain as a timestamp-based series of unalterable data records managed by a network of computers not owned by any single entity. Each data block is interconnected and secured through cryptographic principles (i.e., chain). There is no central authority controlling the blockchain network, and as it is shared and immutable, the information contained within it is open to everyone. Therefore, everything created on the Blockchain is inherently transparent, and all participants are accountable for their activities. The Blockchain is a simple yet ingenious method of transmitting information from point A to point B in a fully automated and secure manner. The initiation of a transaction involves one party creating a block, which is then certified by thousands, perhaps millions, of computers distributed across the network. The verified block is added to a chain, which is stored across the web, creating a unique record with a specific history. Tampering with a record would entail falsifying the entire chain across millions of instances, making it practically impossible. While Bitcoin commonly utilizes this model for monetary transactions, it can be deployed in numerous other ways.

Blockchain’s blocks are built of digital fractions of information. In particular, they have three parts:

1. Blocks store transaction information, such as the date, time, and dollar amount of Amazon’s latest purchase. The Amazon example is for illustrative purchases; Amazon retail does not work on this writing blockchain principle.
2. Blocks store information about who is involved in transactions. A block for your spending spree from Amazon would record your name along with the official Amazon website. Instead of using your real name, your purchase is recorded without identifying information using a unique “digital signature”, such as a username.
3. Blocks keep information that distinguishes them from other blocks. Like you and me, we have names to distinguish one from another, and each block has a unique code called a hash that allows us to recognize it, unlike any other block. Glasses have cryptographic codes created by unique algorithms. Let’s say you purchased from Amazon, but while browsing, you decided you couldn’t resist and needed to make another purchase. Although your original transaction details would look almost identical to your previous purchase, we can still tell the blocks apart because of their unique codes.

Why Should I Know About Blockchain?

There are three key reasons why you should be aware of Blockchain:

1. 1. Blockchain technology doesn’t necessarily have to exist publicly; it can also operate anonymously when nodes form part of a private network. Financial institutions are under pressure to demonstrate regulatory compliance, and many are embracing Blockchain implementations to reduce compliance costs.
2. Blockchain technology extends beyond finance and is applicable to multi-step transactions requiring traceability and visibility. The supply chain is a prominent example of how Blockchain can be used to manage contracts, forecast product audits, handle voting platforms, titles, and case management. As the digital and physical worlds continue to expand, the practical applications of Blockchain will also grow.
3. The surging popularity of Blockchain will drive both public and private usage of Blockchain, establishing an ecosystem where enterprises, customers, and suppliers can collaborate securely, verified, and virtually.

How Does It Work?

Blockchain technology is still in its early stages of development. CIOs and their business partners should anticipate technology failures, including the possibility of severe software bugs occurring at the top of the Blockchain. A one-time writing technology plugin can check and make sense of each transaction’s records and can only be updated by consensus among system participants. Once new data is entered, it can never be deleted. This technology has great potential. In principle, Blockchain is a chain of blocks sorted in a network of non-trusted peers. Each block references the previous one and contains data, its hash, and the last block’s hash.

Block

A block within a blockchain can represent a unit of data and may vary depending on the type of Blockchain. It has the capability to store various types of data, such as currency, company shares, digital ownership certificates, voting data, and other relevant records. Blocks store encrypted details of the involved parties, which are traced back and stored as data within the block. Moreover, each block within a cryptocurrency blockchain also includes encrypted sender and recipient identifiers. For instance, in an e-commerce transaction block, retail and consumer identifiers are included.

Additionally, every block contains a hash, a unique value generated from a line of text using a mathematical function. This hash plays a crucial role in identifying the block and its content. When a block is created, a hash is calculated—any alteration within the block results in a change in the hash value. Hence, changes in the hash also denote changes within the block.

Furthermore, each block contains a hash of the previous block. For instance, in a blockchain with three blocks, block 3 will contain a hash of block 2, and block 2 will include a hash of block 1. Any attempt to alter the data within a block would lead to a change in the hash value, rendering the entire chain invalid. Therefore, the hash serves as an effective tool for identifying any unauthorized attempts to modify data within blocks. However, ensuring blockchain security requires more than just the hash algorithm. In addition, blockchain technology employs a process known as proof-of-work.

Proof-of-work

Proof-of-Work (PoW) is a mechanism for generating data that is difficult to obtain but straightforward to verify. In the context of Blockchain, PoW entails solving complex mathematical problems. Successfully resolving an issue allows for the addition of a new block to the Blockchain. Typically, it takes about 10 minutes to perform the necessary PoW calculations and append a new block to the Blockchain.

What’s behind the proof-of-work process?

This mechanism is comparable to a game of dice. Let’s say there is a number 7, for example, that the player needs to roll. The player will most likely require several attempts and will get 7 sooner or later.

Now, let’s add more players to the game. Whoever rolls the correct number wins first.

It is how proof-of-work operates. Of course, the problem to be solved in a blockchain is way more complex than rolling seven cubes, but the concept is quite the same.

The scientific issues in Blockchain must be complex to solve but easy to check to eliminate cheating. Jointly, the hashing and proof-of-work mechanisms provide security for the entire blockchain system.

Longest chain

The blockchain nodes perform proof-of-work in real-time due to the vast number of nodes within the Blockchain. Consequently, it is common for multiple nodes to complete proof-of-work successfully with a valid result. Such an event leads to a situation called a “hard fork,” signifying a significant change in the Blockchain. When new blocks are added or created to one of these forked chains, it becomes the longest and the only valid chain. This process results in blockchain nodes discarding blocks from other forked chains, and all the transactions listed in those blocks are subjected to additional verification. At present, the longest fork reached has not exceeded five consecutive blocks.

Wallet

Through hashing and proof-of-work, the blockchain wallet ensures transaction security and prevents fraud. The wallet generates paired public and private keys, providing additional transaction security. The public key functions similarly to a mailbox, where anyone can deposit a letter but cannot access it afterward. Only the rightful owner, possessing the private key, can unlock the mailbox and retrieve the letter. Similarly, in Blockchain, anyone can send a transaction using the public key to the recipient’s address. However, solely the owner of that address, who holds the corresponding private key, can access the value of that transaction.

Distributed Network

Anyone can join a peer-to-peer blockchain network. When someone joins a peer-to-peer blockchain network, they acquire a full copy of the Blockchain. The distributed storage of data, combined with the effective hashing and proof-of-work mechanisms, serves to prevent fraud and hacking attacks. For instance, an attacker attempting to add a block with an invalid hash or data, duplicate an existing block, or engage in transaction fraud would need to hack into each participant’s computer to insert an invalid block. Even if this were possible, none of the nodes would validate such a block, and it would be disregarded as though it never existed.

How Does Blockchain Transaction Work?

These are the 4 following steps on how blockchain transactions work:

1. A person requests a transaction. The transaction could involve cryptocurrency, contracts, records, or other information.
2. The requested transaction is transmitted to a P2P network with the help of nodes.
3. The network of nodes verifies the transaction and the user’s progress with the help of knowledge-based algorithms.
4. When the transaction is complete and done, then the new block is added to the existing Blockchain – in such a way that it is permanent and unalterable.

Why Do We Need Blockchain?

In this case, here are some reasons why blockchain technology has become so hyped.

Resilience

Blockchains are often replicated architecture. Most nodes still manage the chain in the event of a massive attack against the system.

Time reduction

Blockchain can play a vital role in the financial industry by allowing the quicker settlement of trades, as there is no necessity for a lengthy verification, settlement, or authorization process. A single version of agreed-upon data from the shared ledger is accessible to all stakeholders.

Reliability

Blockchain verifies and certifies the identities of the interested parties. This means that it removes double records, helps in reducing rates, and accelerates transactions.

Unchangeable transactions

Blockchain authenticates permanence by registering transactions in a chronological sequence of all operations, which means that when any new block has been added to the chain of ledgers, it cannot be modified or removed.

Fraud prevention

The concepts of information-sharing and consensus ensure the prevention of any possible losses due to fraud or defalcation. Blockchain, as a monitoring mechanism, reduces costs, especially in industries based on consultancy correspondence and logistics.

Security

Assaulting a traditional database means shrinking a specific target. With the help of Distributed Ledger Technology, every single party holds a copy of the original chain. For this reason, the system remains operative, even if the large-scale number of other nodes fails.

Transparency

Changes to public blockchains are already visible to the public. This offers greater transparency, along with all immutable transactions.

Collaboration

It allows and helps parties transact directly with one another without intervention by any third parties.

Decentralized

There are norms and rules on how every node exchanges the blockchain information. With this method, you are ensuring that all transactions are validated and all the valid transactions are added one by one.

Blockchain vs. Bitcoin

The purpose of Blockchain is to allow digital information to be recorded and distributed but not edited. That concept can be challenging to wrap our heads around without seeing the technology in action, so consider how the earliest application of blockchain technology works.

Blockchain technology was first described in 1991 by Stuart Faber and W. Scott Stornette, two researchers who wanted to implement a system that could not change the documents’ timestamps. Nonetheless, it wasn’t until nearly two decades later that Blockchain had its first real-world application with the launch of Bitcoin in January 2009.

The Bitcoin protocol is built on the Blockchain. In a research paper introducing digital currency, Bitcoin’s pseudonym creator, Satoshi Nakamoto, called it “a new electronic cash system that’s fully peer-to-peer, with no trusted third party”.

Conclusion

In conclusion, the potential of blockchain technology is immense, with its impact extending across various industries. As it continues to evolve and gain acceptance, blockchain stands as a promising tool for enhancing security, transparency, and efficiency in digital transactions and data management.

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