Wtf is blockchain and why is it so hyped up?
Have you ever been annoyed at Bitcoin references in the context of stock market or crypto talks by your friend shooting up your way? Well, if not, you might have the possibly the slightest bit of interest to find out WTF really Blockchain is?
Accept it or not, at some point of time you might have been under impression that Bitcoin and Blockchain are the same. Or do you feel the same even now? No problem. Sabko nahi pata hota Laxman.
Well, by the time as you might have assumed, Bitcoin and Blockchain are two different things and not the same and what if I tell you Blockchain >>>>>>> Bitcoin.
Well, I won’t virtually pretend like you are in complete awe and I know doing that would be dumb. So, keeping on the expose going on, what if I tell you Blockchain is the technology working behind the Bitcoin? In fact, Blockchain is the underlying technology behind every damn cryptocurrency we have in existence. Moreover, Blockchain has its claws extended outside the financial boundaries and is taking over the computing domain along with AI and ML at a rapid pace, all relying on its absolutely stupendous transparency and none to other security.
Exploring Blockchain History
Bitcoin definitely not the entity bigger than Blockchain, was unarguably the one to introduce the world with Blockchain. But, who worked at Bitcoin in the first place? Well, there is something similar to a movie plot here. We still don’t know the person or the group which discovered bitcoin. Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin’s original reference implementation. As part of the implementation, Nakamoto also devised the first blockchain database.
Wtf is Blockchain ?
Are you also intimidated by these so called big definitions and words and always said to yourself
“WTF IS BLOCKCHAIN?”
Did you also think Bitcoin is Blockchain?
Learning blockchain or bitcoin will make you rich?
Or you just want to be part of this trend ?
Let’s start with a small story of two friends : Aditya (it’s me) and Vedant(my homie).
Aditya is on a trip to Lonavala, and he ran out of money after spending everything he had. He calls up his friend Vedant to lend him some money
Vedant checks his account balance, if he has Rs. 1000 or not. He has it. Makes a transaction via a bank or 3rd party wallet app. Money is transferred.
Me: Got it bro. Thanks J
Vedant: Anytime J. (Fir se gaye mere paise)
So, what exactly happened? An online transaction. How?
Money from Vedant’s acc was debited and after bank’s formalities , the money was credited into my acc.
Basically, we both trusted bank to manage our money
There was no real movement of physical bills to transfer the money. All that was needed was an entry in the register.
More precisely, an entry in the register that neither me nor Vedant owns.
Centralized System
These kinds of systems where we depend on a central authority (here RBI) and multiple 3rd party (Banks and Wallet Apps) is called a Centralized System. It’s a regulated system by the Central Authority (here RBI).
That’s exactly the problem with our current system.
“To establish trust between ourselves, we depend on individual third-parties.”
For years, we’ve depended on these middlemen to trust each other
. You might ask, “What is the problem depending on them?”
So, could there be a better system where we can still transfer money without needing them ?
To answer this, we need to dig a little deeper and ask ourselves better questions.
Think about it for a second, what does transferring of money means ?
Just an entry in register. Right ?
Is there a way to maintain the register among ourselves instead of someone else doing it for us?
Are you still wimme?
Because now, when several questions have started popping in your mind, we will learn how this distributed register works.
Let’s enter the world of Blockchain.
Decentralized system
Let’s imagine a decentralized network like above.
Let’s decide some rules
1. There must be enough people who would like not to depend on a third party
2. How many are enough? At least 3.
3. Upon mutual agreement, they have details of each other’s accounts all the time — without knowing the other’s identity.
4. Everyone contains an empty folder and empty pages.
Making a transaction:
B to send Rs 10 to J
1. Everyone checks if B has Rs 10 in his account or not.
2. If he has enough balance, everyone approves the transaction and makes a note of the transaction in their paper.
3. Transaction is complete.
Now, just like the transaction showed before, all of them kept doing transaction in the similar manner. At one point of time, after 10 such transaction the page gets filled. They don’t have anymore space to write the new transaction. What do we do ?
It’s time to put the page away in the folder and bring out a new page.
Now, this folder consisting of pages (blocks) having transactions is what we fkn call BLOCKCHAIN.
But wait, what if someone tampers our paper and the transactions in it.?
How do we make sure our paper in the folder is safe and un-tampered ?
How to put our pages away safely? Before we put away our page in a folder, we need to seal it with a unique key.
By sealing it, we will make sure that no one can make any changes to it once its copies have been put away in everyone’s folder — not today, not tomorrow and not even after a year.
Once in the folder, it will always stay in the folder — sealed.
This sealing of the page is the crux of this method.
Outcomes:
Earlier the third-party/middleman gave us the trust that whatever they have written in the register will never be altered.
In a distributed and decentralized system like ours, this seal will provide the trust instead.
This process of sealing is what we call “mining” , the discovery of a new block in Blockchain, by the validation of every node in the network, which is called consensus and the sealing we are talking of which actually serves as the security of this network, almost next to impossible to tamper with, is actually a HASH.
Go google up, WTF is hashing?
If you don’t want to, all I would say in brief is hash is something like a one way function, a magic machine, which when an input is fed, gives up an output. But, given an output, it is extremely difficult to calculate the input.
The sealing number fed as an input to the magic machine is what we call “Proof of Work” which is decided by a competition between the miner nodes, special nodes in the network, built for this purpose, the competition, the process of finding the seal number, to ultimately mine a new block.
Incentives:
Everyone who is the part of the Blockchain is eligible for rewards.
The first one to calculate the sealing number gets rewarded with free money for his efforts. Simply imagine, if E calculates the sealing number of a page, he gets rewarded with some free money, say $1, that gets minted out of thin air.
In other words, the account balance of E gets incremented with $1 without decreasing anyone else’s account balance.
The rewards make everyone keep working in the network.
Bitcoin’s existence:
That’s how Bitcoin got into existence.
It was the first currency to be transacted on a Blockchain (i.e. distributed registers). In return, to keep the efforts going on in the network, people were awarded Bitcoins.
When enough people possess Bitcoins, they grow in value, making other people wanting Bitcoins; making Bitcoins grow in value even further; making even more people wanting Bitcoins; making them grow in value even further; and so on.
What makes Bitcoin or any cryptocurrency scarce and thus giving it value is the fact that a lot of effort is needed in mining a new block at the time of competition. As the time passes, the contest keeps getting harder and harder and harder , making it more difficult to mine. In fact, it is expected that last Bitcoin will be mined in 2140.
AND THAT MY FRIENDS, IS HOW BLOCKCHAIN WORKS.
Fair, decentralized , transparent and secure.
PRETTY INTERESTING AND COMPLEX. RIGHT?
Thanks for following along.
Aditya Ashutosh
