Today, we are going to talk about Blockchain.
The reason we are going to talk about Blockchain is that we need to create the common language across Business and Technology about this issue. Albert Einstein once said that if you cannot explain it simply, you don’t understand it. What enough the goal today is to explain it simply so everyone understands it well enough. Okay, so first of all the things we need to understand are two basic terms Bitcoin and Blockchain.
Bitcoin is a digital coin it’s money, which is digital, but here we are not going to talk about this Bitcoin, we are going to talk about Blockchain. Let’s roll out to know what the Blockchain is.
BLOCKCHAIN: AN INTRODUCTION
The blockchain is a technology that enables moving digital coins or assets from one individual to another individual. It’s really necessary to understand that bitcoin is not Blockchain. It is important to understand in our common language because I heard some compliance people are saying, “Oh we cannot talk about Bitcoin maybe because it has a bad reputation but about Blockchain we should and can talk.”
Okay, so after we understood the basic terms of Bitcoin and Blockchain, it is time to go into the problems that Blockchain attempts to solve. And, the problem is money transfer. Here, I’m going to explain it at a conceptual level at the same for Bitcoin. I’m going only to focus on the concept. I’m not going into the implementation details of how it is done in practice. The important thing is to keep in mind is a concept only.
To read about: Android
HOW DOES THE BLOCKCHAIN WORK?
Let’s understand this through an example.
if a person A wants to move money or transfer money to a person B, let’s say from Israel to Japan; this is typically done using a third trusted party. And, it typically works as follows. First of all A say I want to move transfer to B and order the third party to transfer money to be. The trusted party, because it is trusted, identify B in Japan identifies that as a person and the bank account and then move the money after taking some fee to the right account in Japan.
This typically takes about three days or more but it takes some time. What Blockchain is attempting to solve is first to do the transfer money without the trusted entity as a million, so people can actually talk with each other, second to do it faster than three they actually, immediately. And, third to do it cheaper than the fee that the third party collects.
HOW DOES BLOCKCHAIN SOLVE MONEY PROBLEMS?
- Let’s dive in into how Blockchain addresses the money transfer problem. The first principle that we are going to talk the first concept is a concept of the open ledger. And, I’m going to illustrate this concept using an example.
- Let’s say that we have a network of four people that actually want to move money from one another. And, let’s assume that at Genesis, at the moment of the inception of this network, A has $10 from the beginning.
Now, let’s see the concept of the Open Ledger and how it is being implemented in Blockchain.
Let’s say that A wants to move to B five dollars. What is going to happen is that we are going to add a transaction. A move to B $5 and we are going to link it into the already existing transactions.
Then let’s assume that B wants to move to D $3. So, we are going to do the same. We are going to link another transaction into the ledger, into the chain, that says B moves to D $3. Finally, if you want to move one dollar from D to C, again we will do the same process. D move to C 1 dollar and we link it to the ledger to say open ledger.
Okay, so this is the concept of the open ledger. It is essentially a chain of the transaction and this is one of the reasons that this is called Blockchain. I’m not going to talk about the blocks. These are implementation details, which we ‘will leave aside for a moment but this is a chain of transactions that are open and public to everyone.
For free consultation Contact Us
PRINCIPLES OF BLOCKCHAIN & HOW OPEN LEDGER ARE IMPLEMENTED IN BLOCKCHAIN?
Well, as I have addressed the role of Blockchain in solving money problem so what it gives us is that everyone on the network can see where the money is? How much money each one has in its pocket? First, and second, everyone can decide whether a transaction is valid or not.
For an example, if A now attempts to move $15 to R, to see if everyone on the network can immediately see that this is not a valid transaction because A started with and, then move out to B another 5 A does not have $15 and this transaction will not be added to the open Ledyard. This transaction will not be part of the chain.
Now, we can move to the Second Principle Of Blockchain.
- Look, that we have a centralized place now that managing the ledger but remember that Blockchain goal is to get rid of the centralized place. So, the second principle is distributed ledger, which means Blockchain is going to trade the centralized one and to distribute it across the nodes in the network. It means D, for example, can have a copy of the legend and can hold it in his note.
- “A” can do the same and have a copy of the ledger. And, anyone else that participates in this network and Holland’s allege can holds a chain of events that happen. Now, what we got is that the ledger is distributed and essentially we don’t need anymore the centralized place that holds the ledger.
- We achieve the ball got rid of the centralized trusted party. However, we created another problem or a new problem. Now, when there are various copies of the ledger in the network we need to make sure that all these copies are synchronized and all the participants in the network see the same copy of the ledger the same version of the ledger.
You can also take a look at Artificial Intelligence Explained
And, this leads to the Third Principle Of Blockchain.
I think it is probably the most interesting one.
We have understood already that the ledger is open. Everyone can see the ledger is distributed across various nodes. And now, what we need to understand is how in this kind of distributed ledger nodes understand and synchronize a ledger across itself. They’re going to do that using an example let’s say that B wants to move to C $5. What is B going to do?
“B” is going to publish and broadcast this intended transaction to the network. Everyone in the network will see immediately that B wants to move$5 to see. This is an invalidated transaction. It is not getting yet into the letter. In order to get the letter, we need to understand the concept of minors in Bitcoins.
THE CONCEPT OF MINERS IN THE BITCOINS:
Miners are special nodes, which can hold the ledger, in this case, let’s say that D and A, are miners. Miners are going to do the following thing miners are going to compete among themselves who will be the first to take this transaction invalidate done and be able to validate and put it into the ledger. The first miner that will do that will get a financial reward.
In this case, Bitcoin, let’s try to understand, what it means to be in the competition. In order to be the first, which is able to take the transaction and add it to the ledger, a miner needs to do two things. The first thing that miner needs to validate the new transaction, this is it. The ledger is open and you can immediately calculate whether B does have their funds in order to make the transfer, this is easy.
The second thing that a miner needs to do is to find a special key that will enable this miner to take the previous transaction and to this previous transaction lock the new transaction. In order to find this scheme, this miner needs to invest computational power and time because this search of the key is random.
The miner is repeatedly guessing new Keys until it finds the first key that matches this kind of a random puzzle. The first one that will do that will get the financial reward.
Let’s see, HOW LEDGER’S ARE SYNCHRONIZED ACROSS THE NETWORK?
The A minor was able to solve the puzzle and be able to take this transaction and edit to say its own ledger. What he is going to do now, is going to publish the solution to the entire network to broadcast it to the entire network, which means he would say there is a validated transaction. And, here is the lock, here is a key that enables everyone to take it and add it to their own ledgers.
What are all miners going to do? For example, see that this transaction is already violated and can be added to the ledger, which means there is no point in trying to resolve this transaction and get a reward. A will immediately get this transaction, add it to its own ledger and we look for another transaction to work on and, hopefully, to get the reward next time.
Let’s try to summarize what we did or what we learned. We tried to explain how Blockchain works. We learned that Blockchain is not Bitcoin. There are two different things. We learned that Blockchain is based on basic principles of the fact and the ledger is open and public that everyone can see and add transactions. The fact that the ledger is distributed and essentially exists in many nodes on the network removes the dependency on the third party.
We learned about the concept of miners, who are special nodes in the network. Their role is to validate transactions and add into the ledger. We touched only the fact that the economic incentive of miners essentially ensures that collectively, they agree, what is the official Ledger’s, which should be used by everyone. We need to remember and I really ask you to remember that this explanation is very simplistic. It’s only about concepts and ideas behind Blockchain. The implementation itself is much more detailed and complex and, answers probably a lot of questions that you already have.