[TBD]Understanding block-chain concept

Introduction

Laymen explanation

Its purpose is to establish trust in decentralised environment

Technical explanation

Pillars of block-chain

Open distributed ledger

• • Open ledger is Blockchain database which contains link list of blocks (transactions)

  • Each block contains the following

    • Matter (for example, bitcoin contains From:To:Amount)

    • Cryptographic hash of matter

    • Hash of previous block in chain (Genesis block will not have it. Its first block in chain)

    • Timestamp

• A single block on the Bitcoin blockchain can actually store up to 1 MB of data.

• In many cases a block will group together potentially thousands of transactions, so your Amazon purchase will be packaged in the block along with other users' transaction information as well.

• For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks.

• Validation of block chain

• Reason of adding previous block hash is to link the two blocks. This iterative validation process confirms the integrity of the previous block, all the way back to the original genesis block.[21]

Proof of work

• In the proof of work system, computers must “prove” that they have done “work” by solving a complex computational math problem.

• If a computer solves one of these problems, they become eligible to add a block to the blockchain.

• But the process of adding blocks to the blockchain, what the cryptocurrency world calls “mining,” is not easy.

• Miner does the validation of the block. For example, it will check if the transaction from A->B is valid or not. If A has less money for example, then transaction will be marked as invalid.

• In fact, the odds of solving one of these problems on the Bitcoin network were about one in 15.5 trillion in January 2020.1 To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power and energy (read: money).

Consensus

• • Its about adding block entry to multiple block-chain database

• Transactions are authenticated by mass collaboration powered by collective self-interests.^[19

• The blockchain protocol discourages the existence of multiple blockchains through a process called “consensus.” In the presence of multiple, differing copies of the blockchain, the consensus protocol will adopt the longest chain available.

Condition for a block to be added to the blockchain

• A transaction must occur.

  • That transaction must be verified by a network of computers

• That transaction must be stored in a block

• That block must be given a hash

Block-chain trust factors

Trust of a node in network

• Blockchain networks have implemented tests for computers that want to join and add blocks to the chain.

• The tests, called “consensus models,” require users to “prove” themselves before they can participate in a blockchain network. One of the most common examples employed by Bitcoin is called “proof of work.”

Trust on 'Proof of work'

• Proof of work does not make attacks by hackers impossible, but it does make them somewhat useless.

• If a hacker wanted to coordinate an attack on the blockchain, they would need to control more than 50% of all computing power on the blockchain so as to be able to overwhelm all other participants in the network.

• Given the tremendous size of the Bitcoin blockchain, a so-called 51% attack is almost certainly not worth the effort and more than likely impossible.

Trust for new block

TBD

Trust for existing block

• Once block is a hacker would need to manipulate every copy of the blockchain on the network.

  • In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power.

Consistency of data in network

• What if, through human error or the efforts of a hacker, one user’s copy of the blockchain manipulated to be different from every other copy of the blockchain?

• The blockchain protocol discourages the existence of multiple blockchains through a process called “consensus.” In the presence of multiple, differing copies of the blockchain, the consensus protocol will adopt the longest chain available. More users on a blockchain mean that blocks can be added to the end of the chain quicker. By that logic, the blockchain of record will always be the one that most users trust.

Privacy

Although transactions on the blockchain are not completely anonymous, personal information about users is limited to their digital signature or username.

Use-cases for block-chain

• Digital currency

• Smart contract

Block time

The block time is the average time it takes for the network to generate one extra block in the blockchain.

Some blockchains create a new block as frequently as every five seconds. By the time of block completion, the included data becomes verifiable. In cryptocurrency, this is practically when the transaction takes place, so a shorter block time means faster transactions.

Transaction is not complete until block time.

Challenges with blockchain technology

Ever growing database size

In August 2014, the bitcoin blockchain file size, containing records of all transactions that have occurred on the network, reached 20 GB (gigabytes).[13] In January 2015, the size had grown to almost 30 GB, and from January 2016 to January 2017, the bitcoin blockchain grew from 50 GB to 100 GB in size. The ledger size had exceeded 200 GiB by early 2020.[14]

Computational hungry

"Proof of work" is very costly. In fact, the odds of solving one of these problems on the Bitcoin network were about one in 15.5 trillion in January 2020.1 To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power and energy (read: money).

Power hungry and natural resource waste

Due to enormous computational needs, power requirement becomes extremely high. This cost money and also it is waste of resource

History of block-chain idea

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where document timestamps could not be tampered with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.

Disadvantages of private blockchain

• There is also no need for a '51 percent' attack on a private blockchain.

• Particularly profound adverse implications can happen during a financial crisis or debt crisis like the financial crisis of 2007–08, where politically powerful actors may make decisions that favor some groups at the expense of others,[39][40] and "the bitcoin blockchain is protected by the massive group mining effort. It's unlikely that any private blockchain will try to protect records using gigawatts of computing power — it's time consuming and expensive."[10]He also said, "Within a private blockchain there is also no 'race'; there's no incentive to use more power or discover blocks faster than competitors.

• This means that many in-house blockchain solutions will be nothing more than cumbersome databases."[10]

Bitcoin case study

Proof of work

• When one person pays another for goods using bitcoin, computers on the Bitcoin network race to verify the transaction.

• In order to do so, users run a program on their computers and try to solve a complex mathematical problem, called a “hash.” When a computer solves the problem by “hashing” a block, its algorithmic work will have also verified the block’s transactions.

• As we described above, the completed transaction is publicly recorded and stored as a block on the blockchain, at which point it becomes unalterable.

• In the case of Bitcoin, and most other blockchains, computers that successfully verify blocks are rewarded for their labor with cryptocurrency.

• This is commonly referred to as "mining."

How new coin is created

Privacy

• Although transactions are publicly recorded on the blockchain, user data is not—or, at least not in full.

• In order to conduct transactions on the Bitcoin network, participants must run a program called a “wallet.”

• Each wallet consists of two unique and distinct cryptographic keys: a public key and a private key. The public key is the location where transactions are deposited to and withdrawn from. This is also the key that appears on the blockchain ledger as the user’s digital signature.

TBD

Reference

https://www.youtube.com/watch?v=SSo_EIwHSd4

https://en.wikipedia.org/wiki/Blockchain

https://www.investopedia.com/terms/b/blockchain.asp