BLOCKCHAIN: The background technology

 BLOCKCHAIN TECHNOLOGY


Have you ever wondered there is an easier way to complete transactions without having to deal with banks and other third party applications??

Yes, it's possible with this new type of technology called BLOCKCHAIN




 BLOCKCHAIN can be described as 

  • Collection of records
  • Linked with each other
  • Strongly resistant to alteration
  • Protected using cryptography.

Let's imagine there are 3 friends Raj, Gopal and Ramesh. They went out for a dinner and Raj payed the total amount for that dinner. Gopal and Ramesh decided to spilt the expense amongst each other. Then Gopal sent his share to raj via online money transfer without any problem. But when Ramesh sent his share to raj the transaction failed. 

That's when Ramesh went to know that in many ways a bank 🏦 transactions could fail 

  • It could be due to technical issues
  • Or their accounts might be hacked
  • Daily transfer limits could be exceeded
  • Tranfer charges etc.
To solve these problems the concept of crypto currency came into existence.
Crypto currency is a form of virtual currency that runs on a technology known as BLOCKCHAIN technology. This currency is also used in web 3.0

But who invented Crypto currency?




Satoshi Nakamoto
The crypto currency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The currency began use in 2009 when its implementation was released as open-source software.

Crypto currencies don't require a central authority they are decentralised and they are protected by complex encryption algorithms.

lets imagine what would happen if the above transaction would happened with the digital currency.

Gopal and Ramesh has 3 bitcoins each in reserve and Raj has 5 Bitcoins in reserve.

First Gopal sends 2 bitcoins to raj. The transaction details between them is  permanently  inscribed in a block. This record also holds how many bitcoins each of them own. So after Gopal's transaction raj has 7 Bitcoins and Gopal has only 1 bitcoin and when Ramesh transction is over the same thing would happen Ramesh has 1 bitcoin in reserve while raj has 9 Bitcoins in reserve. 

A record is created in the form of a block the transaction details between them is permanently inscribed in this block.

And the block created is linked to each other and each one of them takes reference from these blocks and these chains of blocks is called a ledger and these blocks is shared among all of the friends which acts as a public distributed ledger.
 
So what happens when Gopal sends 2 bitcoins but he is having only one Bitcoin left. This transaction would fail because every body has a copy of ledger so the receiver would flag this transaction as invalid.

A hacker would not be able to alter the data in the BLOCKCHAIN because
  1. Each user has a copy of ledger
  2. The data within the blocks are encrypted by complex algorithms.


Now let's have a close look at the transaction.
Every user who is using this digital currency has 2 keys
  • Public key
  • Private key.   
Public key - Address that everyone in network knows of.
Example: E-mail address

Private key - Unique address that only the user has knowledge of
Example: Our Gmail password
 
First Gopal passes the no of Bitcoins he wants to send to Raj along with his and Jack's unique wallet address through a hashing algorithm. All of these is a part of transactions details these details are encrypted using algorithms and by using Gopal's unique private key this is done by digitally signed transaction and to indicate that the amount is came from Gopal this output is transmitted across the world using raj's public key the message can only be decrypted by Raj's private key which raj only owns.


The Bottom line

If you know something about the digital currency and the BLOCKCHAIN technology. Let me know in the comments.

To know how does the internet work clic the link below





 

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