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3-minute introduction to blockchain technology

Imagine a world without computer databases. There would be no e-commerce, no ATMs, no Internet banking, no Facebook, no Gmail, no WhatsApp! Almost everything that makes the Internet so powerful and useful depends upon computer databases.

The digital world relies very heavily on computer databases, even though most users are unaware of it. Now imagine a database that is provably immutable/unchangeable and almost impossible to hack. That’s a blockchain. At its core, a blockchain is an ordered and time-stamped sequence of “blocks of information”.

  1. Blockchain technology was invented by the unknown inventor of the bitcoin crypto-currency in 2008. Simply put, the bitcoin crypto-currency runs on the bitcoin blockchain — a public blockchain where anyone can become a miner and details of every single bitcoin transaction are stored on each node.

  2. Blockchain is an innovative mix of decades old, tried and tested technologies including Public key cryptography (1970s), Cryptographic hash functions (1970s) and proof-of-work (1990s).

  3. Over the last few years, many derivative projects (e.g. ethereum, multichain) and blockchain-inspired distributed ledger systems (e.g. BigchainDB, Corda, Hyperledger Burrow / Fabric / Sawtooth, Quorum) have been created.

  4. Blockchains are provably immutable and enable the rapid transfer and exchange of crypto-tokens (which can represent assets) without the need for separate clearing, settlement & reconciliation.

  5. Blockchain solutions can be permissioned (e.g. a Government run land registry) or permission-less (e.g. Bitcoin, where anyone can become a miner). Blockchain solutions can be private (e.g. a contract management system implemented in a pharmaceutical company), public (e.g. an asset backed cryptocurrency) or hybrid (e.g. a group of banks running a shared KYC platform).

  6. Blockchains can handle data authentication & verification very well. This includes immutable storage (data stored on a blockchain cannot be changed or deleted), digital signatures and encryption. Data in almost any format can be stored in the blockchain.

  7. Blockchains can create public-private key pairs and also be used for generating and verifying digital signatures.

  8. Blockchains can handle smart asset management very well. This includes issuance, payment, exchange, escrow, and retirement of smart assets. A smart/crypto asset is the tokenized version of a real-world asset e.g. gold, silver, oil, land.

  9. Blockchains do not have a single point of control or a single point of failure.

  10. For organizations, blockchain technology can minimize fraud; accelerate information and money flow; greatly improve auditability and streamline processes.

  11. The original blockchain, which powers the bitcoin crypto-currency, used proof of work as a consensus mechanism. But today there are multiple distributed ledger systems that offer a host of consensus mechanisms such as Proof of stake, Byzantine fault tolerant, Deposit based consensus, Federated Byzantine Agreement, Proof of Elapsed Time, Derived PBFT, Redundant Byzantine Fault Tolerance, Simplified Byzantine Fault Tolerance, Federated consensus, Round Robin and Delegated Proof of Stake.

  12. One method of providing privacy on a blockchain is the separation of concerns, in which data is sent only to the relevant parties of a transaction. Optionally, the hash of the data is broadcast to all the nodes. This method is used in Corda, Quorum, and Hyperledger Fabric.

  13. Another method of providing privacy on a blockchain involves broadcasting of encrypted data across the entire network.

What next? If you are very new to blockchain technology, try out the build-your-own blockchain simulator at http://byob.centralindia.cloudapp.azure.com:1406/

 

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