Mining Bitcoin, Trusting Bitcoin

WHAT IS A BLOCKCHAIN?

0 134

I’m always intrigued by the approach taken by most people while trying to define a complex problem in a simple, crisp manner that every Joe and Harry can understand not only by nodding their heads in approval but by getting psyched and asking follow through questions. Even H.L Menken noted this and as a result I’m going to take a different approach least I be part of the herd.

The Problem

While defining “Blockchain”, we must first make an illustration of what this disruptive technology is trying to solve. Well, let’s take a simple example. That of international fund transfer often known as remittance. Suppose you are supporting a noble cause in India for example and for your donation to be credited in this NGO’s bank account, a gate way-a bank must be involved to facilitate the transfer. After two or three days depending on the day you initiated the process, your donation would be put in good use.

I want you to note one thing. The moment you involved a bank to facilitate the transfer, both parties trusted on a third party who might not even know about your respective activities. Secondly, there was no hard cash was involved.  Instead what the bank did was simple arithmetic. They simple added and subtracted numbers from your respective bank balances-called ledgers-and claimed to have completed the transfer while charging a fee for that.

The solution

Block chain aims to eliminate these intermediaries and to decentralize the whole fund transfer thing. By doing so, a digital public ledger must be created by at least 3 willing members who desire anonymity missing in centralized systems. The moment consensus is reached at, this ledger can be distributed or decentralized through nodes and transfer done in real time.

For this anonymity to be achieved, all transactions are encrypted through what is known as “Hash” functions which are standardized across the network. These “Hash” function is what give the network authentication through the use of private keys which both parties must have for approval.

Once a transfer happens, that transaction must be verified by the community and certified to be true. Afterwards the public digital ledger is updated and the new transaction now called the block is “chained’ to the longest available chain to form what is known as a “blockchain”. Transfer is in real time and cheap but at the same time irreversible and immutable.

What you noticed the whole time

While this transfer what happening you noted two or three important things. The first was that this transfer happened through a network which wasn’t controlled by any one entity. This is the new platform where transactions are done, a trustless arena which is controlled by everyone connected and that is why the fund transfer happened in a “decentralized” manner. Remember that. Blockchain is decentralized.

Secondly, once a consensus was reach and the transaction verified instantaneously the “master ledger” was open to every stranger connected to the fund transfer network. In fact, every time there is a transaction, they could update, verify and validate this transfer against their copy. This is another aspect of blockchain technology.  It is public, encrypted and update continuously

Third and the most important aspect of this decentralized technology is that once the transaction has been verified and chained, changes cannot be made. What this means is that the process of creating an internet of value which is immutable once verified can lead to the highest level of accountability known in human history.

Leave A Reply

Your email address will not be published.