Understanding blockchain as a beginner

The blockchain is a peer-to-peer distributed ledger and tracks various transactions. It is a system maintained across several computers that are linked in a peer-to-peer network. To know about the technologies involved in building the blockchain architecture refer to post Key Technologies behind blockchain.

NOTE: Here I will be talking about the blockchain and not crptocurrencies such as Bitcoin. Bitcoin, Ethereum, etc. is a cryptocurrency which uses blockchain networks to do a transactions.

An example where Blockchain can help

Suppose one person has some type of digital asset in his wallet (it can be bitcoin or any other cryptocurrency) and he wants to transfer it from his wallet to someone else wallet. The person will initiate a distributed ledger transaction (whose record will be shown on the blockchain) and the payment will move from peer to peer network where no bank can have control over this transaction.

The above transactions are grouped in a block.

There are a lot of nodes/systems monitoring these transactions(blockchain) and a single block can have more than one transaction as well.

Using blockchain we can establish a new generation of transactional applications. That can establish:

1. Trust
2. Accountability
3. Transparency at their core

High-Level Idea of Blockchain network

Let's start by understanding the concept of blockchain syncing. The process of blockchains syncing up has to do with a concept of consensus - an agreement among the network peers. Each and every machine in the blockchain has a copy of a transaction that is processed in the chain.

We can think of Distributed Ledger Transaction (DLT) as a decentralized database where everyone has a copy of transactions that are kept in sync at all points in time. And blockchain is the specific term for DLT data structure.

In the Bitcoin network, miners must solve a cryptographic challenge to propose the next block. This process is known as 'Proof of Work', and requires significant computing power. We will discuss the proof of work in more detail in the Consensus Algorithms post.

Next, let's understand Timestamping which is another key feature of blockchain technology. Each block is timestamped, with each new block referring to the previous block. And these blocks are connected with cryptographic hashes, hence making it really difficult or impossible to make any harmful changes in the chain. Therefore making the transaction network immutable from the very first block.

Blocks are the core of the blockchain network as the name suggests. Let's see what block in blockchain actually is made up of:

1. Each block in the blockchain has the reference to the previous block
2. The proof of work, also known as a nonce
3. The timestamp
4. The Merkle tree root for the transactions included in this block

As we have seen so far cryptography plays a significant role to make blockchain networks secure. On a high level there are two ways where cryptography plays a significant role:

1. Generating hashes for the block
2. Solving proof of transactions

But is blockchain really secure? Let's see the elements of the blockchain architecture that make the network secure.

What makes blockchain secure?

It is extremely hard to change the transactions in a blockchain because each block is linked to the previous block hash. This hash includes the Merkle root hash of all the transactions in the previous block. If a single transaction is changed, it would change the Merkle root hash and also the hash contained in the changed block. Therefore making blockchain really secure.

I will be writing a separate post to explain the security of the blockchain.

Types of Blockchains

There are two types of blockchains. These are:

1. Permissionless
2. Permissioned

Let's see the difference between the two:

In a permissionless blockchain, anyone can join as it is a public blockchain (like Bitcoin). But in Permissioned blockchain pre-verification is required of the parties who want to join as it is a private blockchain.

In this post, we have covered the basics of blockchain and I hope that it is helpful to you in understanding what blockchain is and how it works.