Blockchain Basics

In the last 3 months, I spent a lot of time exploring the Blockchain ecosystem and came across some excellent resources and articles, and here is a summary of my learning for the readers:

Bitcoin History:

  • In Jan 2009, we witnessed the birth of first viable digital currency i.e., Bitcoin, which is a peer-to-peer electronic cash.
  • The mention of Bitcoin came in a paper published in 2008 by Satoshi Nakamoto.
  • The Bitcoin is also called Cryptocurrency because the history of the transaction can be seen by everyone, but the content can be seen by the people who are making and receiving the transaction.
  • There are limited number of Bitcoins. The original creator stipulated that there would be only 21 million Bitcoins.
  • There are 2 ways to acquire the Bitcoins.
    • The first approach is called Mining. In this case, the new Bitcoins are rewarded to the participants that solve increasingly complex Mathematic puzzles every time a Blockchain transaction takes place. The people who chose to solve the problem are called Miners. For mining the participant computer needs to have a lot of processing and electrical power. When the puzzle is solved, the miner is rewarded with a Bitcoin.
    • The second approach is buying from a Global Bitcoin Exchange using your local currency.
  • The value of the Bitcoin is determined based on the demand and supply principle.
  • Considering the complexity of the Math puzzles and the amount of computation it requires by the miner, the last Bitcoin is expected to be mined in 2140.
  • To use Bitcoins for payment between 2 peers, they need an electronic wallet on their computer or smartphone.
  • The Bitcoins can also be exchanged with your local currency.
  • Whenever a transaction is initiated from a Wallet, all other Bitcoin users need to approve that transaction. As soon as the transaction happens, it gets recorded in the distributed ledger called, Blockchain.
  • The major brands such as Dell, Microsoft, Expedia, Subway, Overstock, Whole Foods and many more accepts Bitcoin as a Payment Method.
  • The success of Bitcoin inspired more than 1650+ cryptocurrencies. The top 4 are Bitcoin, Ether, XRP and Tether.

Let’s explore the History of Blockchain:

  • Behind the success of the Bitcoin, we have a novel way to store, validate, authorize and move digital transactions across the internet and that is called Blockchain.
  • Unlike the traditional centralized and de-centralized databases, the Blockchain database is installed on individual machine, and a copy of that database is also installed on every user computer.
  • There are no database servers in the Blockchain ecosystem.
  • Whenever a user tries to make a change in his DB, the request for that change goes to every copy of that database in the network, and once every user database on the Blockchain network accepts the change, the record is updated. This is called consensus based permission. Once the change is accepted by all parties, a new block gets added in the Blockchain.
  • If someone attempts to hack the database on one machine and update the record, the other databases on the network will reject that change because it breaks the integrity.
  • There is no provision for deleting the block. Only addition and edition is possible. This makes the Blockchain database immutable.
  • The Blockchain database is also called distributed ledger because it keeps track of all the transactions.
  • Only the owner of the data in the network is allowed to change his/her own data. This makes the distributed system almost hack-proof.

Real-Life Examples:

  1. EVERLEDGER: Tracks the movement of 1 million diamonds across the world between buyers and sellers. It’s an initiative to track the stolen diamonds.
  • BEYOND DIAMONDS: Tracks the movement of other precious items such as Luxury Cars, Watches and ART.
  • DAO (Decentralized Autonomous Organization): It is an autonomous VC firm which is run by the shareholders and not by the VCs. There is no leadership, geographical presence and any governing laws. It raised $168mn from Cryptocurrency.
  • DEMOCRACY EARTH: In 2016, Colombians voted on a peace treaty with FARC (The revolutionary armed forces of Colombia). The Democracy Earth built a Blockchain system to capture the voices of 6 million Colombians across the world with proper authentication.

Being a newbie in the Blockchain ecosystem, I would request my readers to correct me if I have misstated anything here.

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