UNDERSTANDING BLOCKCHAIN
At its core blockchain is an immutable, decentralized ledger. Let’s try to understand this with an example, what blockchain is and why everyone is talking about it.
Before we dive into the how know of Blockchain, let’s try to understand how blockchain based solutions can resolve our modern-day problems;
A real-life problem
Suppose you bought an Air ticket for your planned vacation next month. Since this was early, you purchased it at a reasonable discounted price. However, just a week before the date of departure something unexpected happened and you realized that you cannot travel on the planned date. While you were annoyed over this development, you heard one of your acquaintances is planning to travel to the same destination in coming week but since it is a busy season, he is unable to buy the ticket as a few available tickets are way expensive now.
You know, despite possessing the economical air travel ticket which you no longer need and you want someone to help, you cannot sell this ticket to your acquaintance. You have to return this ticket to the Airline and ask for the refund (may be after some deductions). On the other hand, your friend will have to buy this vary same ticket from the airline at a higher price.
This obvious unfair business is caused by the limitations of keeping centralized record of ownership. When we buy an air ticket, we purchase the rights to travel on a specific day and for a particular destination. This ownership is recorded centrally at the Airlines database and the ticket is a token, a proof of that ownership. The transfer of such ownership is not possible without registration with central authority (in this case Airline Ticketing database) where records of the ownership for the air tickets are kept.
A few other examples of assets which require maintenance of central records of ownership are property, vehicles and up to some extant currencies (because currency notes are numbered and recorded with central banks).
Can you think of more assets which require central record keeping and proof of ownership?
However, besides certain limitations, Centralized database is crucial for various other reasons.
Security- It is imperative to keep record with a central authority to ensure that these records are safe from theft and unjust manipulations.
Trust and authenticity- If the record of ownership is maintained by a central authority, this will increase the trust on documents of ownership as in case of any doubts, these documents can be objectively verified from the central authority.
Efficiency- The central record keeping and data management saves valuable time as the locating files and verifying records are easier if kept in organized at a single place.
But how blockchain solution fit in?
Blockchain technology was born out of need to maintain de-centralized records of ownership for digital currencies (crypto currencies) e.g., Bitcoin. The intention while inventing this technology was to keep de-centralized records of ownership while ensuring the security, authenticity and objectivity of proof of ownership. Further, this ownership shall be publicly verifiable through de-centralized ledgers and not controlled by any central authority to avoid chances of manipulation.
How this works
For Basic understanding think blockchain as following simple process:
1. An announcement is made in front of multiple witnesses (etc. Miners, other Nodes on blockchain network) who will validate this announcement.
2. Each participant will record the detail of announcement in its own ledger
3. Various announcements are grouped with in a block. Think a standard sized leaf/ page of ledger as a block. Each node/ participant of the network continuously attempts to compare its current block with the current block of the whole network.
4. Only that version will be acceptable which majority of the network have in common. The participant in the network that does not have same content of a block as the majority of participants have, shall discard his version of block and take the copy form network for his record.
5. Each Block is linked to the previous block through a Code at the top of block encrypted through Hashtag Cryptography. Change in previous blocks will invalidate the code in next block thus invalidating all the proceeding blocks.
Moreover, the major difference between a traditional database and a blockchain solution is that in any traditional database we can create, read, edit and delete a record. However, in blockchain solutions, we can only create and edit a record. Now if anything created by mistake and needs editing or deletion, a new correcting announcement needed to be created/ recorded in blockchain, which will be validated by all the participants of the network.
