How Does a Blockchain Work?

If you are a real netizen, then you have come across the term “Blockchain,” or its progeny, “Bitcoin” while surfing the net or during a casual tête-à-tête with a mate of yours. Simply put, Blockchain is a record-custody technology that powers the various cryptocurrency networks that you might have come across. There is a good chance that you have also heard of Satoshi Nakamoto, but; we won’t get into that for now; it’s a deeper enough rabbit hole! More so, there is a higher chance that Blockchain only makes so much sense. And because you are that kind of person, you have probably attempted to comprehend more about Blockchain. In trying to learn, you’ve encountered this definition, “Blockchain is a distributed, decentralized, public ledger.” Great, your journey to understanding Blockchain has begun after finding those terms. Even so, the question at the back of your mind is-is Blockchain had to understand? The good news is that Blockchain is easier to understand than that definition sounds. Let’s look at it how it works:

Blockchain's description is a data framework that keeps transnational information while ensuring it is secure, transparent, decentralized, or distributed. Einstein was fond of thought experiments—well, let’s perform one—you're now traveling through another dimension, a dimension not only of sight and sound but of mind. A journey into a wondrous land of imagination. Imagine you are in space, surrounded by stars, nebulae, planets, and blocks of pure energy. Are you with me? Now that you are with me also imagine that you have the duty of attaching these blocks of energy around a planet, think of them as tesseracts, you know, from the Marvel films. These blocks of energy hold the history of the inhabitants of that planet, which are continually updating. You are the Keeper of the Forever Fire. The attached tesseracts are what you would call a Blockchain, which in this little experiment of ours keeps the history of the people of that planet. Whilst you are the Keeper of the Forever Flame, there is no single authority that controls the tesseracts. A Blockchain is a distributed ledger that is open to every Tom, Dick, and Harry, of course not to forget Mary, Jane, and Sally on the network. Once a piece of information is stored on a Blockchain, it is incredibly difficult to alter it.

These blocks or tesseracts consist of digital pieces or photons of information, respectively. To be exact, they comprise of three sections:
  • These blocks store information about transactions or activities within it, like the timestamp, date, denomination, or value of the action, such as the dollar amount of your most recent game purchase on BEST BUY. (NOTE: This BEST BUY example is for illustrative purposes; BEST BUY retail is not working on a blockchain principle as of this writing).
  • Additionally, blocks store information about the participants of transactions. A block for splurge purchase from BEST BUY would record your name along with, INC. (BBY). Although this recording does not mean that your actual name is in the Blockchain, your transaction records without using any identifying data by a digital signature, think of it as your username.
  • Moreover, blocks keep information that differentiates them from other blocks. Much like you and me distinguish each other with at the very least, names, or even fingerprints. Each block stores a special code that is called a hash, which allows us to note it from every other block. Remember our experiment; a hash would be a unique energy signature in each tesseract. What are hashes? Hashes are codes of a cryptographic nature that are created by deploying exceptional algorithms. Let’s make it more concrete for you. Say you decided that your PS4 games were not enough, and you want to binge-game, so you get some more for your Nintendo Switch. While the first purchase is in transit, you have already made the second one, the details of your first and second purchase will be identical. However, the blocks signifying those transactions can still be told apart because of their codes.

What Things Can Blockchain Do Well?

Narrowing it down, Blockchain does three things quite well, viz:

Smart Asset Management: what is a smart asset? A smart asset is a tokenized version of a real-world asset, for example, land, gold, or coltan. Management of these assets includes issuance, exchange, payment, escrow, and retirement.

Data Verification & Authentication: the storage of data on the Blockchain can occur almost in any format. Data verification and authentication include encryption, digital signatures, and permanent custody. In this process, Blockchain can create key pairs and generate and authenticate digital signatures.

Smart Contracts: they are exactly how they sound; self-executing pieces of code surrounding a legally-binding agreement. They are often misunderstood and would require rendering of their topical issues some other day.

How to Build a Blockchain

Over the last couple of years, a lot of derivative and blockchain-based projects have come and gone. 2017 was the Year of the Blockchain, which propelled the price of Bitcoin to $20,000. This year a lot of many Blockchain projects funded by ICOs (a whole another beast to tackle) were declared. Technically, the majority of them were not blockchains but rather distributed ledger systems. You want to build a Blockchain, say your Bitcoin casino, and want people to learn how to play Baccarat online. Well, let’s look at the steps you would follow to implement it: Let us decode how to build a blockchain in just ten steps.

Step 1: Identifying a relevant use-case, your Bitcoin casino, for instance.

Step 2: You have to choose an appropriate consensus mechanism, whether Proof-of-Work (PoW) or Proof-of-Stake (PoS). Nodes within a network must agree that a transaction is legitimate.

Step 3: Choosing the right platform. There are many out there, most of which are free and open-source, for example, Ethereum, Hyperledger Fabric, etc.

Step 4: You have to design the nodes for the validation of transactions by miners.

Step 5: Designing your Blockchain Instance, which is a delicate thing. For example, for your Bitcoin casino, you would employ Parameters that ensure that it takes away or reduces the house advantage while players are playing so that a game is provably fair.

Step 6: Constructing the APIs, you know, for your payment gateways, et cetera.

Step 7: The Admin and the User Interface come next.

Step 8: Incorporating future tech, such as AI, for instance. You have to augment the value of your Blockchain.

Step 9: Marketing. Outrightly, this is not a build it, and they will come situation. You have to shout from the top of the Internet streets- Extra! Extra! Read All About It!

Step 10: Keep learning.

Some Bit of History

There is a ton of hype surrounding Blockchain, but did you know some of its main architectural elements started way back? In 2008, Satoshi Nakamoto (another whole beast to tackle) released a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. The article was an exquisite potpourri of public-key cryptography, which developed in the 1970s, cryptographic hash functions, also born in the 70s, and Proof-of-Work birthed in the 1990s.

Bonus infographic:

Blockchain Infographic: Growth, Use Cases & Facts
Graphic Courtesy of: Dotcominfoway.

Featured Illustration: FreePik
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