Many of us have increasingly become used to transacting using digital wallets and online payment systems. We are also urged to never share your PIN number and password to prevent hackers and fraudsters from breaking into accounts and stealing money. So, while transactions are digital, the fears are very similar, such as our pockets being lost or assets stolen. While such concerns are largely non-existent in the world of cryptocurrency, as is the point of all the useless ways in which they are used. This is because cryptocurrency is embedded in blockchain technology, which ensures that it is very difficult to tamper with records or avoid unauthorized transactions.
What is Blockchain?
It is a combination of two words ‘block’ and ‘chain’ and its meaning is very simple. To begin with, you need to know that bitcoin – the oldest and most valuable cryptocurrency – can process transactions known as ‘blocks’, and then all such blocks in a continuous ‘chain’ of transactions. connects to another. Like a ledger or ledger, where the entries are listed one below the other. Except that there is no one person who records the entries, but everyone who owns a cryptocurrency gets to play an active role in the maintenance and integrity of the ledger.
Why was the blockchain created?
Any cryptocurrency is a digital token. That is, let’s say you have 10 bitcoins, you don’t actually hold them in your hands. Your crypto assets will exist as lines of code on the computer and any transactions you make will need to be performed and verified digitally.
Now, purely digital currency, which exists only in code form, can be more complex than physical money. This is because with physical money, if you have a Rs 10 note and you have given it to a shopkeeper to buy a pen, you will not be able to use the same note again because you have lost the custody of Rs 10 , or changed. Note for the item you have purchased. However, there is a problem with a digital currency that the same line of code, which represents a set monetary value, can be sent to multiple people. How do they know that someone hasn’t already spent the money being offered anew?
You can tell that when we spend money online, even if the transaction is digital, we don’t manage to spend the same funds twice. This is because the wallet or account being used for online transactions is monitored by a third-party – a bank or payment service provider – that keeps track of how much money is in your account and how much you have paid. has spent.
But bitcoin, and other cryptocurrencies that followed, were created to be decentralized currencies, that is, one that would not require a bank or third-party monitor to verify transactions. Blockchain, then, was the dominant technology proposed by the creators, or creators, of bitcoin to solve the problem of not having a central authority to oversee transactions.
How does Blockchain work?
in 2008 white paper“We propose a solution to the double-spend problem by using a peer-to-peer network,” said Satoshi Nakamoto, the pseudonymous person or group of people who led the creation of bitcoin. The network can hash-based timestamp transactions. By hashing an ongoing chain of proof-of-work, creates a record that cannot be changed without redoing the proof-of-work.”
In short, the basic idea behind blockchain is, of course, a statement of the other technicalities that go into making the system a robust online ledger. Since there is no central authority to monitor transactions, the blockchain is called a “decentralized ledger”.
Bitcoin’s creators noted that to remove the role of a trusted third-party, “what is required is an electronic payment system based on cryptographic proof, rather than trust, that allows any two interested parties to communicate directly with each other.” allows transactions”. But there was the ‘double-spend’ problem and to combat this, the creators proposed “a peer-to-peer distributed timestamp server to generate computational proofs of the chronological order of transactions”. Sounds like complicated code, but what it conveys is the philosophy of blockchain.
The bitcoin paper assumes, simply, that in order to be able to detect any case of ‘double spend’, the user must be aware of any previous transactions made with the same coin, or code, as it Digital money is what we are talking about.
“The only way to confirm the absence of a transaction is to be aware of all transactions … For this to be completed without a trusted party, the transaction must be publicly announced, and we must provide the order to the participants.” There is a need for a system to agree on a single history of what they had received,” the paper said. Get it done and, voila, you have your own peer-to-peer, decentralized and secure, cryptocurrency.
How does bitcoin use its blockchain?
So, first, when a transaction is made using bitcoin, it is broadcast to all nodes, which is nothing but the language of bitcoin for any computer that any user can use. to access your bitcoins. What happens after transaction details are shared with all nodes is that each node bunches them into a block. So far, so good. But what prevents a node from broadcasting a fraudulent transaction and uploading it? To counter this, bitcoin has an elaborate ‘proof of work’ and ‘consensus’ mechanism.
What ‘proof-of-work’ involves is nodes stepping down to solve a complex algorithm – once a block is formed – that will generate a key to link the transaction to the chain of all preceding transactions . But solving algorithmically is a task that requires massive computational power, something that generates bitcoin – so-called mining – and also ensures the integrity and security of the distributed ledger.
“When a node receives a proof of work, it broadcasts the block to all nodes. Nodes accept the block only if all transactions in it are valid and have not already been spent,” Bitcoin Paper Says, describing how a block is added to the chain. Now comes the reason why the bitcoin ledger is so hard to tamper with.
Since the nodes in the bitcoin system have to accept transactions in a block, a majority decision system is involved. That is, 51 percent of all computing power in the bitcoin network must be fine-tuned to be added to the blockchain. The Bitcoin paper states that “the majority decision is represented by the longest chain, with the largest proof-of-work effort”.
“If most of the CPU power is controlled by honest nodes, the honest chain will grow the fastest and surpass any competing chain. In order to modify the previous block, an attacker would need to obtain proof-of-work and All subsequent blocks will have to be redone and then the work of honest nodes to capture and surpass,” given the computational power required to verify and link a block, this is something that bitcoin users believe. That it could never happen.
Unless, one group controls 51 percent of the computational power. It can then force other users to accept whatever transaction it cleans up. But the bitcoin paper notes that the transaction would be “computationally impractical for an attacker if honest nodes control the majority of CPU power”.
What other uses can it be?
The use of blockchain technology is being explored in many areas, from maintaining a database of land records to facilitating voting in elections. IBM is said to have developed a logistics tracker for food based on blockchain, while the technology is being developed for sectors such as banking, healthcare, etc. All are included,” says IBM. Within the crypto-verse itself, blockchain is also now used to support the creation of non-fungible tokens (NFTs), a new digital asset category that allows users to digitally create artwork, etc. and allows trading in. They as signature property.
Coming back to real-world uses, tampering of documents and records and vote manipulation are issues that a blockchain-based system can address, as there is no central authority or central database that manipulators can hack.
in its draftNational Strategy on Blockchain’, the Ministry of Electronics and Information Technology (MeitY) stated that blockchain “is a suitable technology to be applied to address the shortcomings of any asset records management system. The immutability in blockchain can give citizens the assurance that their assets are records will never be tampered with”.
The Securities and Exchange Board of India (SEBI) has also reportedly directed to set up a blockchain system to track aspects related to the stock market.
But that is not to say that blockchain does not have its drawbacks, chief of which is the enormous energy requirement to run the system. Cracking the algorithm that enables the addition of a block to the chain requires users to dedicate massive amounts of computational power. When it comes to bitcoin, cryptocurrencies are rewarded for expending so much energy, but this is one aspect of the system that has been flagged as not being environmentally sustainable.
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